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Budget 2012: residential SDLT - higher and higher

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With effect from 22 March 2012, a new 7% SDLT rate will be introduced for residential property with a value in excess of £2m. 

The usual transitional rules apply to this change so it will not catch property transactions which complete after 22 March 2012 under a contract which: (a) was entered into and "substantially performed" (by the buyer getting the keys to the property or paying more than 90% of the price) before that date; or (b) has not been materially varied prior to completion (e.g. change to property, parties or price). It is only contracts that are protected - not options or pre-emptions - nor will the transitional provisions help if the contract is assigned or novated to a different buyer.

The usual "linked" transactions rules apply to the new 7% SDLT band but the bulk purchase relief introduced last year will allow multiple purchases of different properties to benefit from lower rates if the average price of the properties involved would not exceed the £2m threshold. The 7% rate will also not apply where 6 or more properties are transferred as this is automatically deemed to be non-residential property.

It is important to note that this is the second SDLT rate increase for just residential property and there is no suggestion from the Government that the rate increase will be extended to commercial property in the future. There was always a worry in the property industry that SDLT rate increases on residential property would eventually be carried across into non-residential property. However, the Government seems comfortable that this should not be the case and that different SDLT rates for different sorts of property can be justified.

The new rate will have a dampening impact on the increasing prices of high value residential property in the UK, mostly in London and the south-east, but may not make that great a difference to the desire of overseas buyers to invest here. London property, in particular, seems to be viewed as a safe haven for overseas investors although the other changes discussed here may be more problematic for overseas investors than this rate increase.

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