Section 214 Schedule 35: Higher Rates for Certain Transactions
Summary
1.Section 214 and Schedule 35 provides for a higher rate of Stamp Duty Land Tax of 15 per cent to be charged on the acquisition of interests in high-value dwellings by certain persons and bodies of persons.
Details of the Section
2.Subsection 1 provides for amendments to be made to Part 4 of the Finance Act 2003.
3.Subsection 2 provides for amendments to be made to section 55 of FA 2003 in relation to the higher rate, including provision that section 55 does not apply to a transaction to which the higher rate applies. Section 55 sets out the amount of tax chargeable in respect of a chargeable transaction.
4.Subsection 3 inserts a new section 55A FA2003 and introduces a new Schedule 4A.
Details of the Schedule
5.Paragraph 1(1) provides a definition of an “interest in a single dwelling”.
6.Paragraph 1(2) provides that an interest in a single dwelling is a higher threshold interest if consideration of more than £2,000,000 is attributable to that interest.
7.Paragraph 2(1) provides that sub-paragraphs (2) to (8) apply to a chargeable transaction which consists of or includes a higher threshold interest.
8.Paragraph 2(2) provides that if the transaction does not include any chargeable interests other than higher threshold interests then it is a high value residential transaction for purposes of paragraph 3.
9.Paragraph 2(3) provides that if the transaction (“the primary transaction”) includes a chargeable interest in other land the transaction is treated for the relevant purposes as two separate chargeable transactions –
one that consists of all the higher threshold interests, and
one that consists of the remainder of the interests included in the primary transaction.
10.Paragraph 2(4) provides for the chargeable consideration for the primary transaction to be attributed between the two transactions in sub-paragraph (3).
11.Paragraph 2(5) provides that the transaction at sub-paragraph 3(a) is a high-value residential transaction for the purposes of paragraph 3.
12.Paragraph 2(6) defines “relevant purposes” as for the purposes of –
paragraphs 3 and 4 of this Schedule,
section 55,
Schedule 5,
Schedule 6B, and
any other provisions of Part 4 of Finance Act 2003 if it is necessary to do so because of the paragraphs (a) to (d).
13.Paragraph 2(7) provides that where the primary transaction is treated as two separate transactions, each of these, but not the primary transaction, is a notifiable transaction for the purposes of section 76.
14.Paragraph 2(8) provides that the provisions relating to land transactions returns apply, as necessary, to the separate transactions under sub-paragraph (3).
15.Paragraph 2(9) provides that the Schedule does not apply to transactions to which section 74 or 75 apply.
16.Paragraph 3(1) provides that where this paragraph applies to a chargeable transaction a higher rate of tax of 15 per cent will apply and that the transaction will not be linked to any other transaction for the purposes of section 55(4).
17.Paragraph 3(2) provides that this paragraph applies to a transaction if it is a high value residential transaction and the conditions in paragraph 3(3) are met.
18.Paragraph 3(3) provides that the higher rate applies where the purchaser is a company, or the transaction is entered into by a partnership one or more of whose partners is a company or the transaction is entered into for the purposes of a collective investments scheme.
19.Paragraph 3(4) provides that references in sub-paragraph (3) to a company do not include a company acting in its capacity as the trustee of a settlement.
20.Paragraph 3(5) provides that where there are joint purchasers, the higher rate applies if any of those joint purchasers meets the condition at sub-paragraph 3.
21.Paragraph 3(6) & (7) provides for special rules that apply to certain partnership transactions chargeable under paragraphs 17 and 17A Schedule 15 to ensure they are within the higher rate charge as appropriate.
22.Paragraph 3(8) provides that paragraph 3(2) and (3) of Schedule 16 do not apply for the purposes of sub-paragraph (3). Therefore, for the purpose of the higher rate, where a lease is granted to a person as bare trustee it will be treated as if it were granted to the person or persons for whom he is trustee.
23.Paragraph 3(9) provides that where the whole or part of the chargeable consideration for a transaction is rent, paragraph 3 has effect subject to section 56 and Schedule 5, which provide for the amount of tax chargeable where the chargeable consideration consists of or includes rent.
24.Paragraph 3(10) provides a power for the Treasury to amend sub-paragraph 3(3) by order to limit the types of person affected by the higher rate SDLT charge.
25.Paragraph 4(1) provides that sub-paragraphs (2) and (3) apply if –
a chargeable transaction includes a chargeable interest in a dwelling,
other transactions include other chargeable interests in that dwelling and are linked to the original transaction, and
the total consideration attributable to all such interests is more than £2,000,000.
26.Paragraph 4(2) provides that each of those interests is treated as a higher threshold interest in a residential property for the purposes of this Schedule.
27.Paragraph 4(3) provides that if the condition at paragraph 3(3) (entities to which the higher rate applies) is met in relation to the original transaction at sub-paragraph 1(a), it is treated as met in relation to any other transactions that are treated as linked with it.
28.Paragraph 4(4) provides that the schedule does not apply to transactions to which section 74 or 75 apply.
29.Paragraph 5(1) provides that the higher rate will not apply to interests acquired by a company in the course of a property development business for the sole purpose of developing and reselling the land, where the company had been carrying on that business for at least two years before the effective date of the transaction.
30.Paragraph 5(2) provides that the higher rate will not apply to interests acquired by a partnership in the course of a property development business for the sole purpose of developing and reselling the land, where the partnership had been carrying on that business for at least two years before the effective date of the transaction
31.Paragraph 5(3) provides for special rules that apply to certain partnership transactions chargeable under paragraph 17 Schedule 15 where the partnership is carrying on a business a property development business.
32.Paragraph 5(4) provides for special rules that apply to certain partnership transactions chargeable under paragraph 17A Schedule 15 where the partnership is carrying on a business a property development business.
33.Paragraph 5(5) defines a property development business as one that consists of or includes buying and redeveloping for resale residential property.
34.Paragraph 5(6) provides that a company is treated as having carried on a property development business if at any time it was carried on by a member of the same group as the company.
35.Paragraph 5(7) provides that companies are members of the same group for the purposes of this paragraph if they are treated as such for the purposes of group relief (see paragraph 1 of Schedule 7).
36.Paragraph 6(1) provides that sub-paragraphs (2) and (3) apply to certain transactions involving a partnership which consist of or include a higher threshold interest.
37.Paragraph 6(2) provides that the partnership transaction is not treated as a high-value residential transaction unless the chargeable consideration is more than £2,000,000.
38.Paragraph 6(3) provides that paragraphs 2(3) to (8) do not apply to the transaction if the transaction includes chargeable interests in land other than a higher threshold interest and the application of paragraph 2(3) and (4) results in chargeable consideration of £2,000,000 or less being attributable to the higher threshold interest.
39.Paragraphs 6(4) to (6) set out what, for the purposes of sub-paragraph (2), the subject matter of the chargeable transaction is in relation to transactions within paragraphs 14, 17 and 17A of Schedule 15.
40.Paragraph 7(1) provides that this paragraph sets out rules for determining what a dwelling is for the purposes of this Schedule.
41.Paragraph 7(2) provides that a building or part of a building is a dwelling if –
it is used or suitable for use as a single dwelling, or
it is in the process of being constructed or adapted for such use.
42.Paragraph 7(3) provides that land that is, or is to be, occupied or enjoyed with a dwelling as a garden or grounds (including any building or structure on such land) is to be taken as part of the dwelling.
43.Paragraph 7(4) provides that land that subsists, or is to subsist, for the benefit of the dwelling is to be taken as part of the dwelling.
44.Paragraph 7(5) provides rules to establish what constitutes a dwelling for the purposes of the charge under Schedule 4A. Sub-paragraph (5) extends the charge to the case where a contract is substantially performed and the contract includes an interest in a building or part of a building which is to be constructed or adapted for use as a single dwelling, construction or adaptation of which has not yet begun.
45.Paragraph 7(6) provides that the meaning of “contract”, “relevant deeming provision” and “substantially performed” have the same meaning as in Schedule 6B.
46.Paragraph 7(7) provides that a building used for the purpose specified in section 116(2) or (3) is not used as a dwelling for the purpose of sub-paragraph (2).
47.Paragraph 7(8) provides that where a building or part of a building is used for the purposes specified in sub-paragraph (7), no account is to be taken for the purposes of sub-paragraphs (2) of its suitability for any other use.
48.Paragraph 8(1) provides for Treasury to amend paragraph 7 by order.
49.Paragraph 8(2) provides that the reference in section 116(8)(a) to the “the purposes of subsection (1)” includes a reference to the purposes of paragraph 7(2).
50.Paragraph 9 defines “appurtenant rights” “attributable”, “collective investment scheme” and “company” for the purpose of this Schedule.
Details of the Section
51.Subsection 5(1) provides for amendments to Section 74.
52.Subsection 5(2) inserts a new subsection (1A) after the current subsection 74(1) that provides a series of steps to establish if a transaction within section 74 (exercise of collective rights by tenants of flats) is to be treated as a higher threshold interest and chargeable to the higher rate of 15 per cent.
53.Subsection 5(3) provides a consequential amendment.
54.Subsection 6(1) provides for section 109 to be varied.
55.Subsection 6(2) inserts a new subsection 2A in section 109 which provides for the power under subsection 2(b) to include the power to alter the conditions for the application of the higher rate at paragraph 3 of Schedule 4A.
56.Subsection 6(3) provides for consequential amendments.
57.Subsection 7 to 9 make consequential amendments to FA 2003.
58.Subsection 10 sets out the commencement provisions for these amendments including transitional provisions for certain transactions effected after 21 March 2012.
Background Note
59.The measure forms part of a package designed to ensure that individuals and companies pay a fair share of tax on residential property transactions and to reduce avoidance.
60.This measure aims to dis-incentivise the ownership of high value residential property in structures that would permit the indirect ownership or enjoyment of the property to be transferred in a way that would not be chargeable to SDLT. The intention is to stop or reduce the number of properties that will enter such complex ownership structures. Taken together with the introduction of an annual charge in 2013 on such property owned by the same sorts of non-natural persons, this will result in a reduction in the number of high value properties owned in such structures.
61.The measure has effect for land transactions where the effective date is on or after the date of the Budget (21 March 2012). The effective date is normally the date on which a contract is completed, but may be earlier if the land is occupied or the consideration for the transaction is given before that date.
