We’re well aware of the recent budget announcement for a 15% SDLT charge on certain property acquisitions, but this created a hiatus period between the budget being announced and the likely passing of the Finance Act in June/July 2012.
Let’s summarise below what the Finance Bill currently states:
- A punitive SDLT rate of 15% will apply where a residential property costing over £2m is purchased by anything other than a person, eg, a Limited Company. The SDLT rate for a “person” making that same purchase would be 7% so clearly, this has a big impact – even on a £2m acquisition the difference in SDLT is £160,000.
- When drafting the 2012 Finance Bill, the Government have clearly listened to property developers and so have included a very narrow exclusion for them. The current draft therefore allows those developers who buy the property in the course of a bona fide property development business and for the sole purpose of “developing and reselling the LAND” to pay 7%, and not 15% SDLT.
Furthermore, the property development company must have carried on that business for at least two years before the transaction to qualify.
- Note the inference that the company must make the purchase with a view to development and resale – not holding for investment purposes. There is no indication as to how any change of intention will be taxed.
There are therefore TWO particular risks for anyone currently making a relevant acquisition:
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- That there is some change to the drafting of the Finance Bill before it is finally passed that makes the criteria more strict for example, the 2 years standing is increased – this is remote, but a risk nevertheless.
- That the get out for property developers is narrower than my reading of it would infer. Of specific interest is the word LAND that I have written in capital letters above.
The legislation refers specifically to “reselling the land” but does the re-development of a building count as “land”. I’m sure there is case law around to support one view or the other, and the chances are that this is not as significant as feared – but hey, when we’re talking about £160,000 in SDLT even on a £2m purchase, it would be unwise to ignore this risk.
So until the Finance Act is passed as law, uncertainty reigns supreme and leaves two obvious questions:
– what exactly are corporate developers supposed to do, and
– what does this do to the high end residential property market?
