Chancellor increases stamp duty land tax to 15% for houses bought through companies

The Government is also considering an annual charge on residential properties valued at over £2 million owned by companies or other vehicles, according to the Chancellor.

George Osborne also announced a crack down on avoidance schemes exploiting the relief from SDLT for sub-sales.

The 15% rate for houses bought through companies "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 according to the Tax Information and Impact Notice issued by HMRC. "The intention is to stop or reduce the number of properties that will enter such complex ownership structures."

The 15% higher rate applies where the property is acquired by a non-natural person.  This includes companies, collective investment schemes (including unit trusts), and partnerships in which a non-natural person is a partner. However the Tax Information and Impact Notice states that there will be exclusions from the charge for 'property developers and corporate trustees in certain circumstances'.

"Thankfully, the Chancellor has not extended this charge to commercial property," said James Crookes, a property law expert at Pinsent Masons, the law firm behind Out-Law.com. "This is sensible because there are often good reasons for commercial property to be traded by way of a special purpose vehicle (SPV)."

"A property SPV is regularly used for investing in property and for the structuring of development joint ventures," said Crookes. "The fact that the clampdown is limited to residential property shows that the Government understands the importance of maintaining the liquidity of commercial property in this country, particularly at the present time."

“Although the SDLT increase targets residential property, operators of care homes and student halls of residence should not panic,” said Jennie Newton, a tax expert at Pinsent Masons. "There is no indication that HMRC have widened what counts as 'residential' for SDLT purposes. Buildings used as halls of residence for FE or HE students, or residential care homes will not be subject to the 7% rate."

Under current rules, if a residential property is purchased for over £1 million, stamp duty land tax is payable at 5% of the purchase price. By contrast if shares in a UK company are purchased, stamp duty is payable at 0.5% of the consideration and if shares in a non-UK company are purchased no UK stamp duty is usually payable.

This has resulted in many very expensive properties being purchased through offshore companies. This does not avoid stamp duty land tax for the initial purchaser, but means that when the shares in the company are sold the subsequent purchaser pays no UK stamp taxes.

The Government will consult on the introduction of an annual charge on residential properties valued at over £2 million owned by companies or other structures, with the intention of legislating in Finance Bill 2013 for commencement in April 2013. No further details are yet available on this proposal.

The Chancellor also announced in the Budget that a scheme exploiting the relief from stamp duty land tax for sub-sales will be blocked from today.

Under the current law sub sale relief effectively means that where a person contracts to purchase an interest in land but, before completion, transfers their rights under the contract to a third party there is a single charge to stamp duty land tax.

The sub-sale rules will be amended so that it is clear that the grant or assignment of an option cannot satisfy the requirements of the sub-sale rule.

"Continuing their crusade against SDLT avoidance, it was predictable that HMRC would shut down the widely-marketed subsale schemes – the only surprise is that it took them so long," said Newton. "Businesses in the real estate sector should be reassured that 'normal' subsales taking place outside the context of an SDLT avoidance scheme should not be affected."

The Chancellor also warned in his speech against future stamp duty avoidance. "Let me make this absolutely clear to people.  If you buy a property in Britain that is used for residential purposes, then we will expect stamp duty to be paid. That is the clear intention of Parliament. I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned", he said