Conveyancing update
Conveyancing practice and procedure update:
stamp duty land tax and business transactions – Part 2
David Bowden completes a summary of the new rules from HM Revenue and Customs (HMRC) for business transactions in relation to stamp duty land tax (SDLT).
About the author
David Bowden is a solicitoradvocate at David Bowden Law®
On 16 March 2016, new rules applying to business transactions were set out by HMRC in Stamp duty land tax: reform of structure, rates and thresholds for non-residential land transactions.1 1 This evaluation focuses on the HMRC guidance as commercial conveyancers need to know its contents. Part 1 of this article appeared in (2016) June CILExJ p20.
For readers’ information, the author looked at the new SDLT measures applying to buy-to-let investors who have to pay an additional 3% SDLT on property purchases completed on or after 1 April 2016 in (2016) May CILExJ p20.
There are no changes to SDLT land transaction returns. However, where purchasers completing after 16 April 2016 wish to take advantage of the old rules (or vice versa), the appropriate amount of SDLT needs to be inserted in box 14 of the form. HMRC says that such a SDLT return can be amended up to 13 months following the effective date of the transaction.
HMRC says that the Birmingham Stamp Office will need documents produced to it in the following circumstances:
- where a tenant holds over and the lease is treated as being extended;
- where a lease is for an indefinite term, it is treated as a lease for one year, and a letter will need to be returned annually to Birmingham for every year the lease grows;
- where there are successive linked leases between the same parties of the same premises; or
- where the rent payable is variable or uncertain.
HMRC gives as, an example, a business which buys one warehouse before 16 March 2016 and an adjoining one afterwards. HMRC has a formula to apportion the SDLT due so that the earlier transaction is taxed under the old rules and the later one under the new ones.*
HMRC gives as, an example, the purchase of a non-residential property for £450,000. Under the rules before 16 March 2016, the SDLT due would have been £13,500. The new rules reduce this SDLT by £1,500 to £12,000. Where exchange of contracts has taken place before 16 March but completion takes place afterwards, the buyer can elect to have the transaction taxed under the more benign later regime.
However, if someone agrees to enter into a lease before 16 March 2016 and that lease is varied after that date (for example, to reflect a rent increase), then for completions after 16 March SDLT can only be charged under the new rules.
If a buy-to-let landlord buys six (or more) flats in a development in a single transaction, they are within the scope of these ‘non-residential land transactions’ . If each flat costs £300,000, then on a total consideration of £1.8m the business SDLT bill would be £79,500. But compare that with an investor who, after 1 April 2016, buys six flats each costing the same price as in the example above, but in different transactions. The SDLT bill for this investor would be £114,000.
So, SDLT savings can be substantial for investors who hoover up a lot of flats in one fell swoop: in this example, the saving is £34,500. The rationale for this ‘Robin Hood’ approach is not entirely clear.
Where a tenant whose lease has expired continues to remain in occupation after 17 March 2016, HMRC will treat the original lease as if it had been extended by one year. SDLT will then be due at the old rates unless the lease had been varied by a rent increase after 17 March. HMRC says that these transactions should be notified to Birmingham Stamp Office within 30 days of the extension, with a calculation (and payment) of SDLT due. This is the case whether the original lease was for a fixed term or an indefinite term.
The situation is different where a new lease is granted to a holding-over tenant after 17 March 2016. For these leases, SDLT is calculated as if the new lease began immediately after the original lease and at the new SDLT rates for non-residential property.
Where a landlord grants a backdated lease to a holding-over tenant, HMRC says that, for SDLT purposes, the lease is treated as beginning on the earlier backdate. HMRC says that it will apply ‘overlap provisions’ so that rent under the new lease is reduced by the amount of rent already taken into account in a holding-over period (page 17).
* Available at: http://tinyurl.com/z34454n, p11