Stamp Duty Land Tax (SDLT) supplement

As previously announced a SDLT supplement of 3% will apply from 1 April 2016 to purchases of second and subsequent residential homes, including buy-to-let properties and holiday homes, where the cost of the second home is £40,000 or more. The Government has now confirmed that the supplement will apply to all purchases, including bulk purchases made by large investors.

SDLT on commercial property

The rules for calculating SDLT on non-residential properties are reformed with effect from 17 March 2016. For property deals completed before that date, SDLT is charged at a single rate on the whole price paid for the property, under the so-called 'slab' system.

Where non-residential property is sold on and after 17 March 2016, the SDLT charge will be calculated according to the value falling within each band, as applies for SDLT on residential properties. The new bands are:

  • 0% up to £150,000
  • 2% £150,001 to £250,000
  • 5% over £250,000

Purchasers who exchanged before 17 March 2016, but completed after that date, will have a choice whether they pay SDLT under the new or the old rules.

Also from 17 March 2016, a new 2% rate will apply to new leasehold transactions where the net present value of the rent is more than £5 million.

These changes don’t apply to properties in Scotland where Land and Buildings Transaction Tax (LBTT) is set by the Scottish Government.

Offshore property developers

Legislation is to be introduced to prevent property developers from using offshore structures to avoid tax on their trading profits derived from developing and letting property in the UK. HMRC will also create a task force to focus on offshore property developers.

Abolition of 'wear and tear' allowance

Landlords of fully furnished residential lettings are currently able to claim a deduction of, broadly, 10% of gross rents. This compensates for not being able to claim any tax relief on the capital cost of fixtures and fittings. As previously announced, this 'wear and tear' allowance is abolished for 2016/17, but is replaced by a deduction for the replacement cost of capital items such as free-standing fridges, beds, etc. Unlike the wear and tear allowance, this relief is also available for partly furnished properties.

Much greater record keeping will be required to track all such costs and to show that the cost is for a replacement, rather than an initial asset; the latter do not get any relief.

Rent-a-room relief

As previously announced, the amount of tax-exempt rental income that someone can have from renting out one or more rooms in their main residence is increasing to £7,500 from 6 April 2016. The previous limit of £4,250 had been in force since 1997.