| 
HMRC updates guidance on the higher rates of stamp duty land tax
The implementation of the supplemental 3% stamp duty land tax (‘SDLT’) charge came into force on 1 April 2016. Bermans has previously looked at the impact of the higher rates of SDLT, particularly in relation to its effect on individual joint purchasers, in an article that can be found here. In this article we look at the charges in relation to companies, partnerships, trusts and inherited properties.
The higher rates of SDLT appear below:
| Property or lease premium or transfer value | Basic SDLT rate | Higher SDLT rate |
| Under £40,000 | 0% | 0% |
| Up to £125,000 | 0% | 3% |
| The next £125,000 (the portion from £125,001 to £250,000) | 2% | 5% |
| The next £675,000 (the portion from £250,001 to £925,000) | 5% | 8% |
| The next £575,000 (the portion from £925,001 to £1.5 million) | 10% | 13% |
| The remaining amount (the portion above £1.5 million) | 12% | 15% |
It is worth noting that the supplemental 3% charge does not apply to purchases of mixed residential and commercial properties or to non-residential properties.
HMRC has recently updated its SDLT guidance, in order to provide further clarity on the higher rates which have proved to be extremely complex in their application. HMRC’s latest guidance includes additional detail about how the increased SDLT rates effect trusts, companies, partnerships and inherited properties. Each of these points will be looked at in turn below.
Companies
A company will be liable to pay the higher rate of SDLT in a purchase of a residential property, if all of the following conditions are satisfied:
• The company is taking a majority interest in the dwelling;
• The chargeable consideration for the transaction is £40,000 or more; and
• The new dwelling is not subject to a lease with an unexpired term of more than 21 years
If the above conditions are met, the additional 3% charge will be payable irrespective of whether or not the company already owns any residential properties.
Partnerships
If a partnership already owns a residential property for the purposes of its trade, it will be liable to pay the supplemental 3% charge on the acquisition of any additional residential properties. If an individual partner acquires a residential property for its private use, the existing residential property owned by the partnership will not be taken into account for the purposes of calculating the individual’s SDLT liability.
Trusts
Beneficiaries of a trust are treated as owning a property, even if they are not the legal owner, when they receive all of the income from a property as well as the proceeds from its sale. This means that the beneficiary of a bare trust (a trust whereby beneficiaries are absolutely entitled to the trust assets) will have any properties they own as a beneficiary taken into account when considering whether the SDLT higher rates will apply to a purchase.
When calculating SDLT liability, the trustee, and not the beneficiary, of a trust will be treated as the owner of the property if the trust: –
• is not a bare trust;
• does not give the beneficiary a right to occupy a property for life or receive income from it; and
• purchases a property for over £40,000 that is not subject to a lease of more than 21 years
Inherited properties
If an individual inherits a major interest in a property (which does not exceed 50%), for the subsequent three-year period following the inheritance they are not treated as having a major interest in the property for the SDLT higher rates purposes. This enables individuals to purchase an additional residential property during this period without being subject to the additional SDLT charge (on the basis that they do not already own any residential properties).
It is worth noting that inheritance and trusts law are both particularly complicated areas and legal advice should be sought in these cases. Please do not hesitate to contact our Private Client department should you wish to discuss this further.
Additional note – ownership of overseas property
The increased rates of SDLT apply to both UK and foreign individuals who already own overseas property. Therefore, any existing overseas properties will be taken into consideration when SDLT liability is calculated upon the purchase of a residential property in the UK.
Finally
The full updated HMRC guidance is available here. The legislation relating to the higher rates of SDLT is complex, with the rates payable on each transaction being subject to a range of variable factors. If you require any further guidance, please do not hesitate to contact a member of our Property team.
.