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Stamp Duty in the Budget: Focus on the fine print

publication date: Jun 3, 2009
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Alastair DarlingNot too many surprises in last month’s budget. We’re doing fine. Yes there are a few deficits here and there but there is hope on the horizon. There is good news if you have an old car but not so good if you earn more than £100,000 and it’s even worse if you earn more than £150,000.

For the property sector there was surprisingly little, given the high profile that falling house prices and a slump in both residential and commercial property have seen. But as ever, when you get into the fine print there are some details which escaped the broadsheets. This article covers the main changes affecting stamp duty land tax or SDLT which (other than the first one – the good news) largely went unreported.

Extension of zero rate for residential property

No surprise here, the extension to the zero per cent threshold for residential property will continue from September to the end of the year. This will benefit purchasers of houses for less than £175,000. In January 2010 the lower threshold will revert to £125,000. This has been a useful exemption and it could have been very beneficial to extend this concession.


Enfranchisement is a popular way to increase the value of your property with no need to call in the decorators. Owners with long leases over flats have the right collectively to force the landlord to sell the freehold to a nominee (normally a company) owned by them collectively. There is an SDLT relief for enfranchisement through a right to enfranchise (RTE) company. Currently, however, there is no such thing as an RTE company since the legislation which introduced RTE companies hasn’t been brought into force.

As from 22 April, the relief is extended to anyone exercising their right to collective enfranchisement. This will mean that the nominee purchaser who buys the freehold could pay less tax since the rate is based on the average price of the freehold per tenant as opposed to the total paid.

Affordable Housing

There are three main changes here. There is currently relief for registered social landlords in certain circumstances (eg where the purchase is funded by public subsidy). This relief is going to be extended to cover the new profit making bodies known as Registered Providers of Social Housing. These don’t exist yet as the legislation creating them is not yet in force. The favourable SDLT treatment of purchasers under shared ownership schemes will also be extended to shared ownership schemes operated by Registered Providers of Social Housing, where the scheme is assisted by public subsidy.

The SDLT treatment of purchasers under rent to shared ownership (“Rent to HomeBuy”) schemes will be simplified. These are where assured shorthold tenancies are granted to a tenant and the social landlord then grants them a shared ownership lease. The relief ensures that the charge to SDLT when the shared ownership lease is granted is based only on that lease and not the rent paid under AST.

Alternative finance bonds

Moving from social housing to high finance. As part of the Government’s plan to make the UK a better environment for inward investment there have been a raft of measures over the last few years ensuring that Islamic finance instruments and transactions are treated in the same way as their equivalent non-shariah transactions; eg to remortgage under shariah law you need to sell your house to the bank and live there under a lease granted back to you by the bank.

The issue arises because under shariah law certain things are prohibited, and in particular the payment of interest. Therefore, creative minds have come up with transactions which give rise to the same economic effect as if interest had been paid. Often property is used either as security or to provide a rental stream equivalent to interest. And on that note it will be apparent that the new relief from Stamp Duty Land Tax and Capital Gains Tax for anyone wishing to obtain finance by issuing Alternative Finance Investment Bonds using land assets as securities provides a useful if somewhat limited boost to the City.

Budget BriefcaseChanges to the penalty regime

This one is not limited to SDLT. Across the board, HMRC have new powers to penalise late payment or indeed nonpayment of tax. This will include SDLT, advisers need to familiarise themselves with the new regime.

Disclosure of tax avoidance

Whilst this might seem esoteric to most property professionals it is a change which has the potential to shake up certain parts of the higher end of the market. Stamp tax mitigation has long been prevalent in both the commercial and residential property markets. Both bespoke planning and schemes are used to avoid SDLT, avoiding serious amounts of money.

Please note – anyone thinking of cash under the table or paying £50,000 for a beaten up sofa needs to understand the subtleties of the distinction between tax avoidance (legal) and tax evasion (illegal)! For the last few years there has been an obligation to disclose the use of tax saving schemes. This applies to a whole range of taxes, including Stamp Duty Land Tax. This doesn’t affect whether the scheme works, but does make it easier for HM Revenue and Customs to block them.

To date, SDLT planning for residential property has managed to escape this. However, a consultation document published on budget day looks to extend that in the near future to residential property with a purchase price of more than £1,000,0000.

Shimon Shaw is a Solicitor at Matthew Arnold & Baldwin LLP