Non UK resident commercial property investors SDLT

Non UK resident commercial property investors SDLT

General – Non UK resident commercial property investors SDLT

The UK has increasingly used SDLT as a means of raising taxes. Since 2010, total SDLT receipts have more than doubled.

So what does the non UK resident property commercial investor investor need to know about SDLT?

SDLT: The basics

Perhaps stating the obvious, SDLT is a tax that is levied on the Purchaser. The tax applies to the acquisition of most interests in land

All interests in land will be subject to SDLT unless they are specifically exempt. Such an interest in land is termed a chargeable interest in land.

Depending on the consideration paid (or in some cases the market value (for the property or interest purchased, a relevant percentage of tax is levied to that consideration (or market value in relevant cases).

An example would be that if I sell you some land for £1m and you pay me in cash then that is the chargeable consideration. You will pay SDLT on £1m. The rate will be determined as a % of that £1m.

However, if I am feeling a bit flush then I might give you the property. Here, there is no consideration and there is no SDLT.

But if I made this gift contingent on you taking over my £500k mortgage then this ‘assumption of debt’ would be deemed consideration. You will pay SDLT on the £500k.

Another common deeming provision is triggered where one transfers an interest in land to a company with which you, the transferor, is connected. In most cases, this will result in their being deemed consideration equal to the market value of the property transferred.

Significant changes for residential property over the last few years

The SDLT system for UK residential property has been overhauled dramatically over the last half decade. Receipts have doubled over this time due to a swathe of punitive rules and rates.

The catalyst behind these changes was the Governments realisation that there are huge enclaves of prime residential streets in London were owned by thousands of non-UK registered Companies. These companies generally being based in the same exotic locations featured in the Paradise Papers ‘revelations’.

With effect from 22nd April 2012, there were two main changes:

  • the highest SDLT rate was increased to 7% for all residential properties costing over £2 million (at that time); and
  • where the same property was to be acquired by a company (or certain other vehicles), then the rate of SDLT is 15 percent.

The higher 15% ‘super rate’ applied in circumstances where the property is acquired by something or someone called a Non-Natural Person (NNP).  Rather than being a personal slight, this specifically refers to ‘vehicles’ such as companies, collective investment schemes (including unit trusts), and partnerships in which a non-natural person is a partner.

Note that a NNP does not include Trustees even where the Trustee is a Corporate Trustee.

 From 20 March 2014, the 15% rate of SDLT was revised such that it applied on the acquisition of property interests valued at over £500,000 where the purchaser is a NNP.

There are a number of reliefs which might apply to protect a NNP from the 15% charge and these broadly operated where there is a commercial reason for holding the property – eg it is a property development or letting business as opposed to one in which the ultimate beneficial owner will live in.

December 2014 – major overhaul of residential SDLT

The prior to the changes in December 2014, the residential rules were pretty outdated.

On the purchase of the property one would look at the chargeable consideration paid / market value of the property and then apply the applicable rate in full. The way the bandings worked meant that the higher the value of the property the higher the rate.

This was called the ‘slab system’.

Obviously, this precipice system means unfair results abound. In theory, where a purchaser paid an extra £1 of consideration then, if it took a person fairly and squarely in to the next banding, it could lead to a disproportionately higher tax bill.

Of course, this did not often happen in practice as the market became distorted around the various thresholds.

The new system unveiled in December 2014 was a progressive one in the sense that one only pays the higher rates on that part of the value that falls within that band.

The new ‘slice’ system also brought with it new bands and new rates.

Old commercial SDLT rules pre-March 2016

The old ‘cliff-edge’ slab system still lived on for a couple more years in relation to commercial property. As described above, this meant that a single rate of duty was applied to the full consideration depending on its total value.

Similar to the old residential framework, it created a distortion as the tax liability leapt considerably once a new threshold was breached even by a single pound.

For example, under the old slab system a property with a value of £255,000 attracted a charge of £7,650. The full amount being subject to the 3% rate.

However, in a parallel universe (but one with the same SDLT system!), if that property was sold for just £5,000 less, then the duty would have been 1% charge applied. This would reduce the tax charge to £2,500.

Here are the rates in full:

Chargeable consideration  Rate of tax
Up to and including £150,000 0%
£150,001 – £250,000 1%
£250,001 – £500,000 3%
£500,001 plus 4%

 

Commercial SDLT rules – from 17 March 2016

From March 2016, the structure of commercial SDLT rules was realigned with those for calculating SDLT on residential and commercial properties.

So, both have now moved from a ‘slab’ to a ‘slice’ system.

The applicable rates are as follows:

 

Chargeable consideration Rate of tax
Up to £150,000 0%
£150,001 to £250,000 2%
£250,001 plus 5%

 

The ‘rule of six’

It should be noted that where a purchaser is acquiring 6 or more linked residential properties then this transaction will fall in to the non-residential / commercial rates of SDLT.

The 3% SDLT surcharge for Buy to Let Acquisitions

Another recent set of SDLT provisions which have been thrown in to the mix is the 3% SDLT charge for the acquisition of additional residential properties.

This controversial measure has applied since April 2016 where, at midnight on the date of completion, the purchaser owns two or more properties.

Where this rule applies then an additional 3% is added to the normal prevailing rate of SDLT.

However, this only applies to residential properties. It does not apply to commercial properties and it does not apply to properties that have a mixed use.

 Conclusion – Non UK resident commercial property investors SDLT

 Once again, we see successive Chancellors identifying bricks and mortar, as a relatively simple method of raising taxes. Firstly, through the SDLT changes to residential property before seeping in to the commercial world.

This mission creep is unlikely to stall any time soon.

 Articles in this series on Non UK resident commercial property investors tax are as follows:

  1. Non UK resident commercial property investors income tax and CGT
  2. Non UK resident commercial property investors SDLT
  3. Non UK resident commercial property investors IHT

If you have any queries on Non UK resident commercial property investors SDLT, or any other matters, then please get in touch.

 

By | 2018-03-05T18:21:32+00:00 5 March 2018|Andy Wood, international tax, offshore tax, property tax, tax planning|

About the Author:

Founder & Technical Director, Andy is a practical, creative tax adviser with a very broad tax knowledge. He is regularly quoted in the media as an expert on topical tax issues.

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