Stamp duty land tax (SDLT)
When real property is transferred in England, SDLT is payable by the purchaser (see ‘Update and trends’). SDLT does not generally apply to a gift made by an individual unless the property is subject to a mortgage.
A purchaser of residential property pays SDLT at the following rates, each rate being applicable to the part of the price within the relevant band:
- £0 to £125,000: zero per cent;
- £125,001 to £250,000: 2 per cent;
- £250,001 to £925,000: 5 per cent;
- £925,001 to £1,500,000: 10 per cent; and
- £1,500,001 and over: 12 per cent.
A purchaser of a new residential leasehold property pays SDLT on the purchase price of the lease (lease premium) at the rates above. If the total rent over the life of the lease is more than £125,000 SDLT is also payable at 1 per cent on the portion over £125,000 unless the purchaser buys an existing assigned lease.
First-time buyers purchasing properties at £500,000 or less can claim relief from SDLT up to £300,000. They pay a rate of 5 per cent on the portion of the purchase price between £300,001 and £500,000.
If a purchaser of residential property valued at £40,000 or over already owns another property, he or she may also have to pay an additional 3 per cent SDLT on the value of the new property. This additional rate will not apply if the new property is being acquired to replace a main residence that is being sold. A company will usually have to pay the additional SDLT rate regardless of whether it owns any other property. In certain circumstances, trustees may also have to pay the additional rate.
For residential property costing over £500,000 acquired for private use through a company or other relevant non-natural person (such as a collective investment scheme or partnership with at least one corporate partner), higher-rate SDLT at 15 per cent is payable on the entire purchase price.
However, if an appropriate relief applies, for example, if the residential property is used for a property rental or development business, the standard residential rates above apply instead. If the higher-rate SDLT at 15 per cent is payable on an acquisition, the additional 3 per cent rate will not also be payable.
With effect from 6 April 2018, SDLT has been replaced by Land Transaction Tax for transfers of property in Wales.
See ‘Update and trends’ for proposed changes to the taxing regimes described below to take effect from 6 April 2019.
A disposal of real property may give rise to a charge to CGT if a gain is realised on disposal (see question 3). The rules under which such a charge arises, the gains to which it applies and the rates at which it is levied will vary according to the nature of the property (eg, whether it is residential or commercial) and the nature and residence status of the individual, trustees, company, partnership or other entity that makes the disposal. Reliefs and exemptions may be available to mitigate a charge in appropriate circumstances. For example, in the case of an individual’s main residence, principal private residence relief should apply to relieve the gain from tax.
Broadly, gains made on a disposal of real property may be taxed under the following regimes:
- the main CGT regime: these are the rules that apply to tax gains made on disposals of all types of chargeable property owned by UK tax residents, with the exception of companies that are liable to corporation tax on their chargeable gains. Reliefs and exemptions are available in certain circumstances;
- ATED-related CGT: this regime was introduced with effect from 6 April 2013, together with the annual tax on enveloped dwellings (see below) and higher-rate SDLT (see above). It taxes gains arising on or after 6 April 2013 (unless an election is made to take into account earlier gains) on disposals of higher-value UK residential property made by companies, collective investment schemes or partnerships in which a company is a partner. The charge applies where consideration for a disposal exceeds a ‘threshold amount’, currently £500,000. Tax is charged at 28 per cent and reliefs applicable to ATED and higher-rate SDLT also apply to ATED-related CGT; and
- non-resident CGT: this regime was introduced with effect from 6 April 2015. Gains made on or after that date (unless an election is made to different effect) on disposals of UK residential property by non-UK residents, including individuals, trustees, partnerships, closely held non-resident companies and funds that are not widely marketed, are potentially within charge. In contrast to ATED-related CGT, all property that is ‘used or suitable for use as a dwelling’ is within the scope of the non-resident CGT charge, regardless of its value, including residential property used for letting purposes. The reliefs available under ATED-related CGT are not available under this regime. However, in appropriate circumstances, principal private residence relief may be available to individuals and trustees making disposals.
In circumstances where a gain is within the scope of both ATED-related CGT and non-resident CGT, ATED-related CGT will take precedence so that there is no double charge. If any part of a gain post 6 April 2015 is not within ATED-related CGT (perhaps because a property was rented out for a period), that part of the gain will be potentially subject to the non-resident CGT charge.
In addition to the CGT provisions described above, there are anti-avoidance provisions in place that attribute gains made by non-resident companies to their UK-resident members. Similar provisions apply to attribute gains made by non-resident trustees to settlors and beneficiaries in certain circumstances. While both ATED-related CGT and non-resident CGT takes precedence over such provisions in respect of gains to which they apply, the provisions will still be relevant to tax gains not caught by either regime.
Any rental income arising from a UK property will be from a UK source and always taxable in the UK at the individual’s marginal rate of tax.
Council tax on residential property is payable annually to the local authority.
Annual tax on enveloped dwellings
An annual tax was introduced, with effect from 1 April 2013, on high-value residential property in the UK held through a company (other than one holding the land as trustee), a collective investment scheme or a partnership in which a company is a partner. It also applies to property in joint ownership where such an entity holds jointly with individuals.
It is known as the ‘annual tax on enveloped dwellings’ (ATED) and, with effect from 1 April 2016, applies to interests in UK residential property valued over £500,000. For the first five years from 1 April 2013, the charge was based on the market value of the property as at 1 April 2012 or on the date of acquisition, if later. Subsequent revaluations are to be made every five years. The first revaluation date was 1 April 2017 and, for the five years from 1 April 2018, the charge is based on the market value of the property as at 1 April 2017. For the present period of account (1 April 2018 to 31 March 2019) the charge is being levied at the following rates:
- over £500,000 and up to £1 million: £3,600;
- over £1 million and up to £2 million: £7,250;
- over £2 million and up to £5 million: £24,250;
- over £5 million and up to £10 million: £56,550;
- over £10 million and up to £20 million: £113,400; and
- over £20 million: £226,950.
ATED returns and payment for each year are generally due 30 days after the start of a period of account (ie, 30 April each year).
There are a number of reliefs and exemptions from ATED, including (among others) relief for property developers, property traders and property rental businesses, as well as for providers of social housing, and charitable companies that do not fall within the ‘ownership condition’ for the purposes of the tax. These exemptions and reliefs are also applicable to the higher rate of SDLT (15 per cent) for acquisitions of residential property over £500,000 by companies, collective investment schemes or partnerships in which a company is a partner, as well as to the ATED-related charge to CGT on disposals of high-value residential property (see above and ‘Update and trends’). In certain circumstances, it is possible to claim a refund of the ATED charge if the property is sold or otherwise outside the scope of ATED after the return has been filed.
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