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SDLT & ATED Update January 2017
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SDLT & ATED Update This update comments on the latest developments on the following: •
•
• • • •
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higher SDLT rates on purchases of additional residential properties proposed reduction in the filing period for SDLT returns to 14 days de-enveloping voluntary SDLT returns the proposed introduction of Welsh Land Transaction Tax ATED, including the annual chargeable amounts payable for the period commencing 1 April 2017 and the new digital system for filing ATED returns the Project Blue (Chelsea Barracks) SDLT appeal and an important Tribunal decision on ATED penalties
Marc Selby Partner | Tax marc.selby@laytons.com +44 (0)20 7842 8000
SDLT & ATED Update | January 2017
Higher SDLT rates on purchases of additional residential properties The legislation for the 3% surcharge came into force on 15 September 2016 (the date of Royal Assent of the Finance Act 2016), although, as is well known, these rules have applied since 1 April 2016. HMRC’s guidance on the higher rate, originally published in March 2016, was updated in November 2016. Those who have not yet read the updated guidance are advised to do so.
mortgagee’s lending criteria in a case where the child owns no other property will not trigger the surcharge, provided that the parent will have no beneficial interest in the property being acquired. See also paragraph 3.13A of the updated guidance; iii. The 3% surcharge can apply in a case where a lease is extended, particularly if the extension takes the form of a surrender of the existing lease and the grant of a new lease: see paragraph 3.6A of the updated guidance. However, where a tenant is proposing to extend a lease, the 3% surcharge should not apply if: •
effective date of the transaction; or
The following should be noted: i.
Further examples of how the new rules apply have
the tenant owns no other property at the
•
in a case where the existing lease has an
been added to the original version of the guidance
unexpired term of more than 21 years, the new
and are set out in Chapter 9 on pages 33-38 of the
lease is granted as an overriding lease and in a
updated guidance;
way which avoids the surrender of the existing lease.
ii.
The original version of the guidance included an example of a parent, who owns another property,
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iv. The 3% surcharge only applies if the property being
purchasing a residential property jointly with his
acquired consists of a “major interest”, which is defined
son who was a first time buyer intending to occupy
in section 117 of the Finance Act 2003. In relation
the property as his residence. In that example the
to land in England and Wales, references to “major
parent co-purchaser was to have a 30% share in the
interest” are construed as references to (a) an estate
property being purchased, with the son having a
in fee simple absolute, or (b) a term of years absolute,
70% share. The example stated, correctly, that the
whether subsisting at law or in equity. HMRC has
3% surcharge would apply in that case. However, the
circulated draft guidance which states that where
updated guidance includes Example 19 in Chapter 9
what is sold is held in trust as an “undivided share”
which states that a parent joining with an adult child
with another person, the bare trust rules in paragraph
to purchase the property in order to comply with the
3 of Schedule 16 to the Finance Act 2003 turns the
SDLT & ATED Update | January 2017
undivided share into a “major interest�, thereby
De-enveloping
making what is sold potentially subject to the higher rate charge. This interpretation has been criticised
As is generally well known, the protection from an IHT
and is open to doubt. It is understood that HMRC are
charge for non UK domiciliaries holding properties in non UK
giving detailed consideration to responses to the draft
companies, which are often owned in an excluded property
guidance.
trust, will be removed following the introduction of legislation, which is currently in draft form, with effect from 6th April 2017. In many cases there will be no fiscal advantage in non
Proposed reduction in filing period for SDLT returns to 14 days
UK domiciliaries holding a property in such companies and this has encouraged many non-UK domiciliaries to consider de-enveloping the property. De-enveloping can trigger tax charges, including a charge to CGT and (if there is debt in the company) a charge to SDLT. HMRC has confirmed that
HMRC published a consultation document in August 2016
there is no proposal to introduce a statutory relief for de-
in which it was proposed that the filing period for SDLT
enveloping. In some cases, the risk of an SDLT charge can be
returns should be reduced from 30 days to 14 days from the
mitigated or avoided by removing debt from the company
effective date of the transaction. The consultation period
before the property is transferred. However, if the removal of
has now ended and HMRC has reported on their findings
debt is effected by a transaction for consideration, e.g. where
to the Minister. It is anticipated that the 14 day filing period
debt owed to a shareholder is exchanged for shares in the
will come into force in early 2018, although this is subject to
company (commonly known as capitalisation), there is a risk
ministerial approval.
that the anti avoidance provision in section 75A of the Finance Act 2003 could be invoked to impose a charge. HMRC has restated that it is their policy not to respond to applications for rulings under section 75A. However, HMRC is reviewing its guidance on SDLT and de-enveloping, and it is hoped that further guidance will be published shortly.
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SDLT & ATED Update | January 2017
Voluntary SDLT returns There is case law authority which confirms that a voluntary (unsolicited) income tax self assessment return is not a statutory return, see Revell v HMRC [2016] UKFTT97. Notwithstanding this, HMRC’s longstanding policy is to accept voluntary returns on the same basis as returns received pursuant to a statutory notice. In practice SDLT returns are often filed on a voluntary basis, either to generate a form SDLT 5 in order to facilitate registration of the transaction at the Land Registry, or, in cases where there is doubt about the SDLT position, to enable a disclosure to be made in conjunction with the return so as to trigger the 9 month enquiry window. HMRC has stated that it is their policy to accept voluntary SDLT returns on the same basis as returns filed pursuant to a statutory obligation. For purchasers wishing to make a disclosure (which should be submitted by letter to the Birmingham Stamp Office) with a view to precluding HMRC from raising an assessment after the 9 month enquiry window ends in a case where there is doubt as to whether a return must be filed, it is helpful to know that HMRC treats voluntary returns on the same basis as statutory returns, since such a disclosure is only effective if made in conjunction with a return.
SDLT & ATED Update | January 2017
Welsh Land Transaction Tax
Annual Tax on Enveloped Dwellings (ATED)
From April 2018 Welsh Land Transaction Tax will replace SDLT for property acquisitions in Wales. Draft legislation introducing the new tax, which will be broadly consistent with SDLT, was introduced in to the Welsh Assembly in September 2016 and is expected to receive Royal Assent around May 2017. The rates of the new tax will be published in early 2018.
ATED charges for 2017/2018 The next ATED chargeable period will commence on 1 April 2017 and ATED returns for that period, including relief declaration returns, must be filed by 30 April 2017. The annual chargeable amounts for the current period, and for the period commencing 1 April 2017, are as follows:
Property Value
Annual charge in 16/17
Annual charge in 17/18
£500,000 > £1m
£3,500
£3,500
£1m > £2m
£7,000
£7,050
£2m > £5m
£23,350
£23,550
£5m > £10m
£54,450
£54,950
£10m > £20m
£109,050
£110,100
£20m+
£218,200
£220,350
Revaluation for ATED A reminder: properties subject to ATED are required to be revalued as at 1 April 2017 for the purpose of determining the valuation band for ATED charges for the period commencing 1 April 2018. This could result in a property being moved into a higher valuation band, resulting in an increased charge with effect from 1 April 2018.
SDLT & ATED Update | January 2017
Cases Digital filing for ATED returns It is understood that the new digital system for filing of ATED returns is now live, although taxpayers will have to wait until 1 April 2017 before filing returns. In the meantime, it should be possible for taxpayers to register for digital filing. The current (non digital) system for filing ATED returns will, initially, operate in parallel with the new digital system.
Project Blue Limited v HMRC: Leave to appeal to Supreme Court granted Project Blue’s appeal to the Court of Appeal against the Upper Tribunal decision succeeded on the ground that HMRC had incorrectly assessed the purchaser (Project Blue) for the SDLT due when the person liable was the Qatari Bank which acquired the property under an alternative finance arrangement, which should have been assessed instead. However, the Supreme Court has granted HMRC leave to appeal and it is expected that this appeal will be heard in about the first quarter of 2018.
Chartridge Developments Limited v HMRC: ATED penalty The taxpayer, who was assessed for late filing penalties on 5 late ATED returns, successfully appealed against 4 of the penalty assessments on the ground that they stated the incorrect filing date for the late filed returns. The Tribunal decided that these defects invalidated the assessments. Although this resulted in 4 out of the 5 penalty assessments being cancelled, it should be noted that the Tribunal rejected the taxpayer’s claim that reliance on its internal accountant to file timely returns provided it with a reasonable excuse. Clients who receive assessments for late filing of or incorrect ATED returns should therefore carefully check the notice for any defects which might invalidate the assessment.
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