What, there was a Part 1? Yes, in 2019 and a lot has happened since, so I will forgive you. That update was before the recent changes to SDLT reliefs relevant to housing providers pushed through by the last government.
The big story (in my SDLT world at least and which now impacts those investors looking at residential portfolio acquisitions in England and Northern Ireland) was the abolition of multiple dwellings relief (MDR), which made it into the Finance (No.2) Act 2024.
Multiple dwellings relief (MDR)
MDR has been a very valuable tax relief and has helped many to significantly reduce their SDLT liabilities on residential property purchases, particularly large portfolio acquisitions (new and old) by for-profit RPs, REITs and other investors where other SDLT reliefs were either unavailable or irrelevant. It is worth noting that the Welsh Government are consulting on the abolition of MDR under the Land Transaction Tax (LTT) and recently published the responses to that consultation without comment as to whether it will be abolished in Wales. In Scotland, MDR under the Land and Buildings Transaction Tax (LBTT) remains available.
There was considerable lobbying of the previous government to consider a more nuanced approach to the relief as opposed to simply abolishing it and it is likely that this lobbying will continue with the new Labour government. It is yet to be seen whether a renewed focus on government housing policy and targets for the delivery of new homes will result in the reinstatement of MDR (or a revised version of it) or even a new form of relief altogether.
For the time being however, MDR is abolished in England and Northern Ireland and we have transitional rules applying to those contracts entered in to on or before 6 March 2024. So, it is worth ensuring that any historic reliance on or assumption of MDR relief is maintained on those contracts yet to complete and do not fall foul of the transitional rules.
It is also worth remembering that it is still possible to mitigate SDLT on the purchase of residential property if the property can properly be classified as mixed, i.e. part commercial/part residential or if the property being acquired consists of six or more dwellings. In this way, the lower non-residential rate of SDLT would apply rather than the higher residential rates.
The Finance (No.2) Act 2024 also brought in other changes to the SDLT relief regime, and this was off the back of the 2024 Spring Budget as well as HM Revenue & Customs' 2023 revised guidance in its SDLT Manual.
Relevant to and welcomed by RPs (for-profit, non-profit and local authorities), the changes to the SDLT public subsidy relief have clarified its parameters.
As a recap, if the purchase of land is 'funded with the assistance of public subsidy' (basically, grant funding of a type set out the SDLT legislation), then the relief will be available. This is provided that the grant is used by the RP to purchase the land (rather than, for example, to fund construction works post-acquisition). With this relief, there is no questioning the use of the land and no clawback (unlike SDLT charities relief). The relief is potentially available to all forms of RP and the SDLT legislation has recently been updated to include local authorities as RPs for these purposes.
What are the main changes and clarifications?
Local authorities
A local authority is now recognised as a non-profit RP and is therefore able to claim relief on purchases which use qualifying subsidy and on purchases from another local authority or non-profit RP (often referred to as qualifying vendor relief).
There are still grounds for refunds as many local authorities will have paid SDLT when relief was available.
Definition of public subsidy
The definition of 'public subsidy' now includes recycled subsidies (i.e. amounts that are receipts from the disposal of social housing if the buyer is allowed to use that amount for the provision of social housing). This is in line with HMRC's SDLT Manual.
A new category of public subsidy has also been added applicable to local authorities (being grant under section 31 of the Local Government Act 2003). These measures will apply to land transactions with an effective date on or after 6 March 2024.
Expected public subsidy
Historically, RPs might have been hesitant to claim the relief where the land price was paid from their own funds because the subsidy had not been approved or drawn down at the point of purchase. HMRC guidance confirms that relief can be claimed where the RP has a reasonable expectation that the subsidy will be made available to them. It will be important for the subsidy to be subsequently obtained and for the RP to demonstrate that it was allocated to the relevant land purchase in its records.
Transferred public subsidy
The SDLT Manual confirms that relief may be available where the 'liability and burden of an existing public subsidy (i.e. to repay it)' is assumed by the RP purchaser as part of the consideration for the land transaction in question.
This is a relatively complex area. HMRC expects other conditions to be met and states that it is fact dependent. The drafting of the sale contract and how such liability and burden of historic grant funding is documented as passing to the RP purchaser will be key here. There may be opportunity to seek a refund of SDLT paid when the relief could have been claimed but wasn't.
15% rate of SDLT on acquisitions of high-value residential property
Not a relief as such, but the application of the 15% rate of SDLT (applicable to dwellings in excess of £500,000 acquired by companies) has been disapplied for 'public bodies' which includes local authorities. This is to be welcomed by local authorities since there have been instances where local authorities have been caught by this rule and been liable to SDLT at 15%.
The SDLT regime continues to be a complex area and often a minefield for the unwary. Budgeting for tax costs, including SDLT, will always be important in any transaction and identifying the availability of tax reliefs early will not only mitigate those tax costs but often make the transaction or wider development project just that little bit more financially viable. Now, that would be a relief!
