Stamp duty land tax holiday

The SDLT holiday was due to end on 31 March 2021 so that the SDLT rates which were in force before 8 July 2020 (when the SDLT holiday was introduced) were due to apply to transactions which complete after that date. Following a debate on an extension to the holiday in Parliament on 1 February the Government has announced that the holiday will be extended to the end of June 2021. This is clearly good news for buyers and sellers of residential property.

Those who complete their residential property purchase by 30 June will be entitled to benefit from the temporary holiday with a reduction in SDLT of up to £15,000. However, the following should be noted:

The holiday rates only apply to purchases of “residential property”. That term is defined in detail in the SDLT legislation. The definition excludes, for example, mixed use property (e.g. the purchase of a shop with flat above) and purchases of 6 or more dwellings in a single transaction, which is treated as non-residential property, which are generally subject to lower SDLT rates than residential property.
Those buyers who are in a position to exchange contracts, but are unable to complete, by 30 June may be entitled to benefit from the holiday rates if the contract is exchanged and then “substantially performed” by 30 June. This could be achieved if, for example, the seller allows the buyer into possession of the property under an assured shorthold tenancy on or before 30 June. This would trigger an obligation on the buyer to submit an SDLT return and pay the SDLT due within 14 days after being allowed into possession. Both the buyer and the seller should seek specific advice before taking doing this.

SDLT non-resident surcharge

This is due to be introduced with effect from 1 April 2021 and will result in “non-residents” being liable to a 2% surcharge over the rates otherwise payable on purchases of residential property. Draft legislation has been published but is yet to be enacted. The draft legislation is complex and has been subject to detailed comment and criticism. The following should be noted:

The draft legislation sets out its own rules for determining who is “non-resident” for the purpose of the surcharge and it will be possible for an individual to be resident for income tax or a company to be resident for corporation tax but for such individual or company to be “non-resident” for the purpose of the surcharge. For example, a UK company which is controlled (or deemed to be controlled) by non-residents will be subject to the surcharge, even if it is registered for and liable to UK corporation tax.
It will be important to establish the status of the property being acquired since, under the draft legislation, only “residential property”, as defined for SDLT (and not non-residential or mixed-use property) will be subject to the surcharge.

SDLT multiple dwellings relief

We continue to receive enquiries from buyers about whether this relief can be claimed. It is available if the property being purchased contains or includes at least two “single dwellings”. That term is not defined in the legislation but the Government’s guidance states that each dwelling must be sufficiently self-contained to be considered a single dwelling and that each dwelling must be sufficiently independent to be considered a dwelling on its own. If the conditions for the relief are met, and the relief is claimed, the SDLT charge is computed on the basis of the average price paid for each dwelling (with that charge then multiplied by the number of dwellings) which normally results in the SDLT charge being computed at the lower residential rates. Note that:

The relief is subject to complex rules and buyers should take detailed advice before claiming the relief, in particular on the circumstances in which the relief can be withdrawn.
The relief must be claimed in the SDLT return or in an amendment to the return. If claimed in an amendment to the return, the amendment must be submitted within 12 months of the filing date for the return, which is normally approximately 12 months and 14 days after completion.
HMRC’s compliance teams are conducting detailed checks on returns and amendments to returns in which the relief is claimed. Often, HMRC rejects such claims because the dwellings are not sufficiently “independent”, resulting in an assessment for additional tax plus statutory interest.

Annual tax on enveloped dwellings (ATED)

ATED is an annual tax which is chargeable on companies and certain other entities (e.g. a partnership of which a company is a partner) which own one or more single dwellings with a value per dwelling of more than £500,000. The amount charged depends on the valuation band in which the dwelling falls. There are reliefs from ATED, for example where the dwelling is purchased for a bona fide property letting business in cases where the dwelling is not occupied by an individual connected with the company which owns it, but relief must be claimed by filing a return. A company or entity acquiring such a property must file an ATED return and (where a relief is not claimed) pay the tax due within 30 days of completion of the purchase.

We consider ATED to be the most overlooked tax, since we are regularly asked to advise on structures which consist of or include companies which own chargeable dwellings where ATED returns should have, but have not, been filed. Overlooking ATED can be costly since penalties are chargeable if an ATED return is not filed, even if the corporate owner of the dwelling is eligible for a relief and files a “nil” return after the due date. HMRC has indicated that it will be writing to all companies and other entities which it believes own such properties which have not filed ATED returns enquiring why no return has been submitted.

Payment of CGT on disposal of residential property

Non-residents disposing of residential property have been liable to non-resident CGT since April 2015 and must submit non-resident CGT returns and pay the tax due within 30 days of completion of the sale. Since 6 April 2019, UK resident individuals and trustees who realise taxable gains on disposal of residential property must also submit a return and pay the tax due within 30 days of completion of the sale. A key difference between the requirements for residents and non-residents making such disposals is that non-residents must file a return within 30 days even if they realise a loss. Residents making such a disposal need only file a return if they realise a taxable gain. Companies (whether resident or not) are generally liable to corporation tax on such disposals which are subject to different rules.

It is therefore important for individuals and trustees proposing to sell residential property to seek advice at an early stage before exchange of contracts to establish whether there will be a CGT liability and, if so, the amount of the liability, and to arrange for the relevant return to the prepared and filed and the tax due to be paid within 30 days of completion in cases where a taxable gain will be realised. Non-resident individuals and trusts disposing of residential property must submit a non-resident CGT return whether or not they realise a gain.

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