Stamp Duties

 

Alternative Finance

 

A number of recent SDLT avoidance schemes have used the Alternative Finance Reliefs (employed legitimately to comply with Sharian Law) in order to circumvent SDLT charges on property transactions.

 

From 24 March 2011, legislation will “put beyond doubt” that the use of Alternative Finance rules does not avoid the SDLT charge.

 

The changes will clarify the relationship between the rules for sub-sales and Alternative Finance and narrow the definition of a “Financial Institution” for the purposes of Alternative Finance.  For instance it will no longer be possible for to qualify as a “Financial Institution” just by holding a Consumer Credit Licence.

 

Finally, measures will also be introduced to counter the effect of an engineered reduction in market value when properties are exchanged. The chargeable consideration for exchanges involving a major interest in land will be changed to be the greater of (a) the market value of the interest acquired, and (b) what the chargeable consideration would be under the normal rules for consideration.

 

 

House builders

 

Under current law where land is purchased by an acquirer, the rate of SDLT payable by the acquirer has been determined by the aggregate consideration given for the land in question. This has encompassed single transactions involving one or more interests in land and “linked transactions” between the same purchaser and vendor or, in either case, any persons connected with them. This means that a purchaser acquiring multiple properties can pay a higher rate of SDLT than a purchaser acquiring a single property.

 

From Royal Assent, purchasers of residential but not commercial property will obtain a measure of relief.  Any non-residential property will be excluded from the relief.  Where the relief is claimed, the SDLT charge will be calculated by reference to the rate applying to the mean or average consideration paid per dwelling, subject to a minimum charge of 1%.

 

Provision will be made for the relief to apply to “off-plan” purchases where a contract is substantially performed before construction of the dwellings has begun.  A further SDLT return will be required if the number of dwellings reduces, so that additional tax becomes due, within three years of the transaction.

 

The stated policy objective is to strengthen demand for and reduce a barrier to investment in residential property.

 

 

First-time buyers

 

Last year, a special SDLT relief was introduced for the purchase of residential property up to £250,000 by first time buyers intending to occupy the property as their only or main home. This relief is time-limited to two years expiring on 25 March 2012.

 

The government has been reviewing the impact of SDLT on first time buyers and has announced that the outcome of this review will now be revealed in the autumn.

 

Collective Investment schemes

 

The Government has announced it will widen the current definition of when an investment in an underlying collective investment scheme is classed as an ‘exempt investment’ under the SDRT rules. Interests in the underlying scheme will be exempt from SDRT where, broadly speaking, it is not significantly invested in UK shares.