David McDowell of HMRC outlines the key changes in force from 22 November 2017 to stamp duty land tax and the annual tax on enveloped dwellings
The November 2017 budget saw a number of changes relating to stamp duty land tax (SDLT) and the annual tax on enveloped dwellings (ATED). Relief from SDLT for first-time buyers was the most eye-catching change. Other changes in the higher rates for additional dwellings (HRAD) for SDLT are deserving of attention, as is a minor change to ATED.
This new provision enables someone to extend a ‘prior interest’, such as a lease, by adding years; or turn a lease into a freehold; or add to their share of a freehold. They will be able to do this without incurring HRAD, even if they own other property.
The dwelling concerned must have been the purchaser’s main residence for at least three years before purchase, and the prior interest must have at least 21 years to run in the case of a lease, or be least 25 per cent of the equity.
This new rule allows spouses and civil partners to exchange property without incurring HRAD. The main condition is that there is only one seller and only one buyer. The exception to this condition is where the nature of the transfer results in two buyers and both are married to one another, or civil partners of one another.
This new rule affects those who get a divorce or dissolve a civil partnership, by allowing them to retain an interest in a former shared home and have this interest disregarded for HRAD purposes. The conditions for this disregard are that a purchaser: buys on or after 22 November 2017; and owns no other residential property; or if they do, meets the property adjustment order condition. This condition is that an interest in a former matrimonial home is the subject of a relevant court order, and made in favour of another person, for example a former spouse, civil partner, or a child.
The relevant court orders are:
Purchases on behalf of children normally take into account the child’s parents’ property holdings. So a purchase by a family trust on behalf of a child, say, would incur HRAD if the child’s parents, rather than the child, owned other residential property. This change means that a child’s parents’ property is ignored if the trust concerned is acting under the aegis of the Court of Protection in England and Wales or acting pursuant to an appointment under the Mental Capacity Act (Northern Ireland) 2016.
HRAD already provides relief for a change of main residence. It does so by requiring that the purchaser of the new main residence dispose of a major interest in their old main residence.
HM Revenue & Customs (HMRC) became aware that some purchasers were seeking to avoid HRAD by disposing of only part of their major interest in their old main residence when buying a new main residence.
The HRAD rules have been changed to prevent this, by amending the conditions for relief. From 22 November 2017, relief for the purchase of a new main residence can only be given if the purchaser has disposed of the whole of their major interest in their old main residence, and neither they nor their spouse or civil partner retain a major interest in the old property.
HMRC has noted several common errors which are made when completing the SDLT16 to apply for a repayment of HRAD. HMRC has recently undertaken some work to add some error-proofing to the iform version, but there are some checks practitioners can make to further reduce error and consequential delay.
First, applicants often get the effective date of the transaction wrong. Sometimes it will only be incorrect by a matter of days, but it is important that this is completed correctly.
Second, in the section ‘Sale of the previous main residence’, applicants often provide details of the property that they have paid HRAD on, rather than the property that has been sold, meaning that HRAD is no longer due.
Finally, applicants often enter incorrect figures in relation to the new tax assessment (for example, the same figure for all three questions).
As the legislation requires for any chargeable period, the annual chargeable amounts for the 2018/19 chargeable period, which begins on 1 April 2018, are increased in line with inflation. The annual chargeable amounts that apply to the 2017/18 chargeable period, and the revised amounts for 2018/19, are available from the GOV.UK website.
The existing ATED provisions rely on fixed valuation dates to establish the taxable value of any property. Since 2013, when ATED was first introduced, the market value of a property has generally been determined by using a valuation date of 1 April 2012, or the date the property was acquired where that is later. The existing legislation also provides that the 1 April 2012 valuation is refreshed every five years, so that for the five chargeable periods beginning 1 April 2018, the 1 April 2012 valuation date is superseded by the later valuation date of 1 April 2017. This means that for those within the scope of ATED owning a property at 1 April 2018, the valuation to be applied is that as at 1 April 2017.
HMRC has introduced a digital service for ATED returns to replace the old online forms, which will be decommissioned on 31 March 2018 and will become unavailable for use. From 1 April 2018, all online ATED returns must instead be submitted using the new digital service. We recommend advisers / clients register to use the service now if they have not already done so, and certainly well in advance of the start of the chargeable period beginning 1 April 2018.