A New Budget... A New Stamp Duty Tax Loophole

• Posted by Ben James
• Date 20th March 2016
• Leave a comment

OK, so the dust has settled since last weeks budget statement with the Chancellor, George Osborne, announcing the changes affecting the UK property market* as follows:

First time buyers and savers

From April 2017, the new Lifetime ISA for the under 40’s will be open, where you save up to £4,000 a year, and receive a government bonus of 25% - that’s a bonus of up to £1,000 a year. You can use some or all of this money to buy your first home, or keep it until you’re 60. Read the latest factsheet issued by the HM Treasury.

Landlords and second homeowners

A 3% Stamp Duty surcharge on second homes and Buy to Let properties from 01 April 2016 will be introduced and larger investors will not be exempt as previously thought from the stamp duty charges, meaning all purchasers of Buy to Let properties will pay the additional tax. Purchases below £40,000 are exempt from stamp duty. 

Taxation

Capital Gains Tax (CGT) - The government will reduce the higher rate of Capital Gains Tax from 28% to 20% and the basic rate from 18% to 10% on commercial property. The 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property. These changes will take effect for disposals made on or after 6 April 2016.

Commercial Property

Stamp Duty has been reduced on purchases of commercial property below GBP 1,000,000. The Government are introducing a sliced system, similar to that of the residential one, which means purchases of properties such as commercial conversions into residential will now have a lot less Stamp Duty to pay. Furthermore, the Government confirmed that business rates for commercial buildings being rented will have a higher threshold for smaller businesses

All in all, the Chancellors third budget statement in 12 months was quite a positive one for property investors. The Government did not mention limited companies not being able to claim mortgage interest relief so investors with property ownerships held under limited companies can continue to claim mortgage interest relief in their end of year accounts. Incorporation relief will also remain meaning property investors can transfer ownership from their personal name into a limited company and defer the capital gains tax. 

What's this loophole? 

In an email to consultation respondents, the treasury says that landlords can claim multiple dwellings relief to offset the lack of stamp duty carve-out for those bulk purchasing six or more properties.

The email says: “The Government also notes the existing flexibilities within the SDLT system available to significant investors in the property market, including multiple dwellings relief and the ability to pay the non-residential rates when purchasing six-or more properties in the same transaction. Both of these flexibilities will remain.”

An HM Revenue & Customs statement put out this week says: “Where two or more dwelling are purchased in a single or linked transaction multiple dwelling relief (FA2003/Schedule 6B) can be claimed. The higher rates will apply to claims for multiple dwellings relief. Where 6 or more dwellings are purchased in a single transaction the purchaser can choose whether to apply the non-residential rates of SDLT.”

The relief can cut stamp duty by a hefty margin. As an example, if a company bought 10 flats for £1m in total and claimed multiple dwellings relief, the firm would save £9,500 on a total stamp duty bill of £39,500.

The £30,000 figure is worked out by taking the average flat price of £100,000, multiplying by 3 per cent and then dividing by the number of flats.

This loophole works great for us at Estateducation when we purchase multiple properties are part of one joint venture transaction.

If you'd like to learn more about joint ventures, please visit our joint venture page on this site.

Thanks for reading,

The Estateducation Team.  

*Please note we will be regularly updating this post with further information about how the latest Budget could affect you.

The Budget 2016 Policy Paper can be read in full here.