UK: SDLT And Other Property Tax Changes Announced

Following the Chancellor's Autumn Statement of 5 December 2012, HMRC has published the draft Finance Bill 2013 and other tax updates and guidance, with further draft legislation due to be published in early 2013.

Of particular significance to those involved with real estate are the following:

Non-natural persons: annual charge for high value residential properties

It has been confirmed that an annual residential property tax will be introduced for certain non-natural persons that own interests in UK residential properties valued at more than £2 million. The tax will come into effect on 1 April 2013 and annual returns and payments will be required. Returns and payment will usually be due on 30 April in each year but, for the first year of the tax, returns will be due on 1 October 2013 with payment due by 31 October 2013. There are a number of reliefs available if the property is being, or is to be, used for a genuine commercial property rental or trading business; or if it is run as a trade.

The proposed annual charge rates are as follows:

Non-natural persons: Stamp Duty Land Tax ("SDLT") – reliefs from 15 per cent rate

A 15 per cent rate of SDLT was introduced by the Finance Act 2012 on the acquisition of dwellings costing more than £2 million by certain non-natural persons. A number of reliefs will be introduced to reduce the rate to 7 per cent where there is a relief against the annual residential property charge (see above). These reliefs will only apply if the property continues to satisfy the qualifying conditions throughout the following three years.

Non-natural persons: extension of capital gains tax

Legislation is to be introduced to bring in a capital gains tax charge when interests in UK residential property valued at over £2 million are disposed of by certain non-natural persons on or after 6 April 2013. Draft legislation is expected to be published in January 2013.

SDLT: transfer of rights

New legislation will be introduced to reform the SDLT rules for transfers of rights (i.e. sub-sales). The aim of the new legislation is to ensure that SDLT will generally only be charged on the end purchaser of the relevant land; but it also intended to counter tax avoidance schemes which use transfers of rights.

SDLT on leases: simplification

Several new measures have been announced to simplify SDLT returns on lease transactions.

Legislation is to be introduced to simplify the reporting requirements that apply when a lease continues after the expiry of its fixed term, e.g. on lease renewal, and where an agreement for lease is substantially performed before the actual lease is granted. The changes to the rules on fixed term leases will apply where the period of extension begins on or after the date on which the Finance Bill 2013 receives Royal Assent. The amendments concerning substantial performance will also apply where the effective date of the actual lease is on or after the date on which the Finance Bill 2013 receives Royal Assent.

It has also been announced that the rules on abnormal rent increases, which impose an additional SDLT charge where there is an "abnormal" rent increase after the first five years of the term of the lease, are to be abolished. These amendments are intended to have effect on and after the date on which the Finance Bill 2013 receives Royal Assent. The abolition of the abnormal rent increase rules will apply to any increase after that date.

Real Estate Investment Trusts ("REITs")

Legislation, which will take effect for accounting periods beginning on or after Royal Assent to the Finance Bill 2013, will be introduced to allow the income from a UK REIT investing in a UK REIT to be treated as income of the investing REIT's tax exempt property rental business.

The Government has decided that the REIT regime should not be extended to support social housing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.