Tax - Real Property

Stamp duty land tax

When real property is transferred in England (and Northern Ireland), stamp duty land tax (SDLT) is payable by the purchaser. SDLT does not generally apply to a gift made by an individual unless the property is subject to a mortgage.

NB: the general rules stated below are moderated for acquisitions of residential property made during the period between 8 July 2020 and 31 March 2021 inclusive. During this period SDLT is zero rated up to £500,000. If the purchase price is over £500,000, the balance over that value is taxable at the rates set out below for the relevant value band. This concession was introduced by the Chancellor in Summer 2020 in order to stimulate the residential property market during the covid-19 pandemic. It also applies to acquisitions of residential property by companies provided that higher rate SDLT at 15 per cent (discussed below) is not payable.

Under the general rules, a purchaser of residential property pays SDLT at the following rates, each rate being applicable to the part of the price within the relevant band:

• £0 to £125,000: zero per cent;
• £125,001 to £250,000: 2 per cent;
• £250,001 to £925,000: 5 per cent;
• £925,001 to £1,500,000: 10 per cent; and
• £1,500,001 and over: 12 per cent.

Under general rules, a purchaser of a new residential leasehold property pays SDLT on the purchase price of the lease (lease premium) at the rates above. If the total rent over the life of the lease is more than £125,000, SDLT is also payable at 1 per cent on the portion over £125,000 unless the purchaser buys an existing assigned lease. Between 8 July 2020 and 31 March 2021, the zero rate band for both SDLT charges is increased to £500,000.

Under general rules, first-time buyers purchasing properties at £500,000 or less can claim relief from SDLT up to £300,000. They pay a rate of 5 per cent on the portion of the purchase price between £300,001 and £500,000. From 8 July 2020 to 31 March 2021, these rules are replaced by the £500,000 zero rate band.

If a purchaser of residential property valued at £40,000 or over already owns another property, he or she may have to pay an additional 3 per cent SDLT on the value of the new property. This higher rate will not apply if the new property is being acquired to replace a main residence that is being sold. A company will usually have to pay the higher SDLT rate regardless of whether it owns any other property. In certain circumstances, trustees may also have to pay the higher rate. Higher rate SDLT continues to be payable throughout the period from 8 July 2020 to 31 March 2021.

For residential property costing over £500,000 and acquired for private use through a company or other relevant non-natural person (such as a collective investment scheme or partnership with at least one corporate partner), SDLT at 15 per cent is payable on the entire purchase price. However, if an appropriate relief applies, for example, if the residential property is used for a property rental or development business, the standard residential rates above apply instead. If the 15 per cent rate is payable on an acquisition, the higher 3 per cent rate will not be payable.

With effect from 1 April 2021, a surcharge of 2 per cent will be introduced for acquisitions of residential property in England and Northern Ireland by purchasers resident outside the UK. This charge will be known as 'non-resident SDLT' (NRSDLT). The surcharge will be payable in additon to any other SDLT charge payable – standard residential rates, the 3 per cent higher rate charge for additional properties and the 15 per cent rate for companies and other non-natural persons. The charge is potentially payable by individuals, companies, trustees, partnerships, joint purchasers and, in certain circumstances, married couples, among others. The rules are complex and provide for different tests for residence status depending on the nature of a purchaser, and the circumstances in which acquisitions by more than one entity (eg, joint purchasers, partnerships etc) may fall within the charge, in addition to a number of exemptions and reliefs.
Land transaction tax, rather than SDLT, is payable for transfers of property in Wales.

CGT

A disposal of real property may give rise to a charge to CGT if a gain is realised on the disposal. The rules under which such a charge arises, the gains to which it applies, and the rates at which it is levied will vary according to the nature of the property (eg, whether it is residential or commercial). The applicable rules will also vary according to the nature and residence status of the individual, trustees, company, partnership or other entity that makes the disposal. Reliefs and exemptions may be available to mitigate a charge in appropriate circumstances. For example, in the case of an individual’s main residence, PPR should apply to relieve the gain from tax.

With regard to non-UK residents, individuals who dispose of UK residential property are liable to CGT on any gains realised since 6 April 2015. Individuals who dispose of non-residential UK property on or after 6 April 2019 are liable to CGT in respect of any gains arising on or after 6 April 2019.

Non-resident individuals are also taxable on gains made on certain indirect disposals of UK land (residential and non-residential) on or after 6 April 2019. The indirect disposal rules apply where a person makes a disposal of an entity that derives 75 per cent or more of its gross asset value from UK land. There is an exemption for investors in such entities who hold an interest of less than 25 per cent.

Detailed rules apply to the taxation of non-residents in these circumstances, and exemptions may be available in certain situations.

There are also anti-avoidance provisions in place that attribute gains made by non-resident companies to their UK-resident members. Similar provisions apply to attribute gains made by non-resident trustees to settlors and beneficiaries in certain circumstances. While the rules above for non-residents disposing of direct and indirect interests in UK property take precedence over such provisions in respect of the gains to which they apply, the provisions will still be relevant to tax gains not caught by these rules.

Income tax

Any rental income arising from a UK property will be from a UK source and, therefore, always taxable in the UK at the individual’s marginal rate of tax.

Council tax

Council tax on residential property is payable annually to the local authority.

Annual tax on enveloped dwellings

An annual tax is payable on high-value residential property in the UK held through a company (other than one holding the land as trustee), a collective investment scheme or a partnership in which a company is a partner. It also applies to high-value residential property in joint ownership where such a company, collective investment scheme or partnership holds the property jointly with one or more individuals.

This annual tax is the ‘annual tax on enveloped dwellings’ (ATED) and applies to interests in UK residential property valued over £500,000. For the first five years from introduction of the tax on 1 April 2013, the charge was based on the market value of the property on 1 April 2012 or on the date of acquisition, if later. Subsequent revaluations are made every five years. The first revaluation date was 1 April 2017 and, for the five years from 1 April 2018, the charge is based on the market value of the property on 1 April 2017. For the present period of account (1 April 2020 to 31 March 2021) the charge is being levied at the following rates:

• over £500,000 and up to £1 million: £3,700;
• over £1 million and up to £2 million: £7,500;
• over £2 million and up to £5 million: £25,200;
• over £5 million and up to £10 million: £58,850;
• over £10 million and up to £20 million: £118,050; and
• over £20 million: £236,250.

ATED returns and payment for each year are generally due 30 days after the start of a period of account (ie, 30 April each year).

There are a number of reliefs and exemptions from ATED, including, among others, relief for property developers, property traders and property rental businesses, as well as for providers of social housing, and charitable companies that do not fall within the ‘ownership condition’ for the purposes of the tax. These exemptions and reliefs are also applicable to the higher rate of SDLT (15 per cent) for acquisitions of residential property over £500,000 by companies, collective investment schemes or partnerships in which a company is a partner. In certain circumstances, it is possible to claim a refund of the ATED charge if the property is sold or is otherwise outside the scope of ATED after the return has been filed.

England & Wales Guide

The England & Wales guide answers the principal questions for Private Clients relating to the law in this jurisdiction.