Stamp duty land tax (SDLT) Technical News

Issue 6 – January 2008

Contents

Announcements made relating to SDLT in the Pre-Budget Report (October 2007)

Please note that for leases the wording of the PBR Note at the end of paragraph 4 should have stated that

‘’Leases will have to be notified when the lease is for a term of seven years or more and where any chargeable consideration is more than £40,000 or the annual rent is more than £1,000’’. (the relevant amendment is underlined).

The Government has now issued a consultation document about the use of special purpose vehicles (SPVs) in the purchase of high value residential property. SPVs are increasingly being used to avoid payment of SDLT on high value residential property transactions. The consultation sets out how the Government intends to address the issue and explores the practicalities of introducing a charge on the use of SPVs. The consultation also proposes an extension of the disclosure rules to residential property worth £1 million or more. The document will be available on the Treasury website. Any comments should be sent to:

Property Tax Team
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ

Stamp duty land tax: ensuring fairness for all – a consultation document

In the recent PBR the Government announced that it would seek to explore the practicalities of introducing a charge on the use of special purpose vehicles on high value residential property and on extending the SDLT disclosure rules to residential property. On 17 December 2007 the Government published a consultation document seeking views on its proposals. More details about this consultation can be found on the HM Treasury website.

SDLT relief for Zero-Carbon Homes

Budget 2007 announced that relief from SDLT for Zero-Carbon homes would be introduced from 1 October 2007.

Q. What is the definition of a Zero-Carbon Home?

A. Homes must be ‘zero carbon’ over the course of the year. They can be connected to mains electricity and gas but will have to come with sufficient additional renewable power to cover the average consumption of a home over a year.

This means that the fabric of the building will have to be insulated and built to very high standards (triple glazing windows and air-tight walls, for example.) And will need to incorporate renewable energy technologies.

Q. How does the relief work?

A. New homes that meet the Treasury criteria for zero-carbon will be eligible to qualify only on the first sale. The relief will provide complete removal of SDLT liabilities for all homes up to a purchase price of £500,000.

In cases where the purchase price of a new home exceeds £500,000, the SDLT liability will be reduced by £15,000 and SDLT will be charged on the balance of the purchase price of the home above £500,000.

Q. What standard do homes have to meet to get the relief?

A. Houses must meet all of the following three tests:

 

Aspects of energy efficiency

Evidence

Heat loss parameter (“HLP”)

The HLP of the dwelling calculated in accordance with the approved methodology must be no more than 0.8 Watts per square metre Kelvin (W/m²K)

Dwelling CO2 emission rate (“DER”)

The DER over the course of a year calculated in accordance with the approved methodology must be no more than zero kilograms per square metre (kg/m²/year)

Net CO2 emissions

The net CO2 emissions from the dwelling over the course of a year calculated in accordance with the approved methodology must be no more than zero kilograms per square metre (kg/m²/year)

Q. When can people start claiming?

A. The relief applies retrospectively to 1 October 2007.

Q. How do you claim the relief?

A. The relief is just like any other SDLT relief and can be claimed simply by ticking the appropriate box on the, return confirming that you are entitled to it. You should use relief code 30 when claiming. This code will be available to online filers from the end of October 2007.

Q. Who does the test to verify entitlement to the relief?

A. An accredited assessor. The certification process is overseen by:

  • In England and Wales:
    • Department for Communities and Local Government (DCLG)
  • In Northern Ireland:
    • Department of Finance and Personnel (DFPNI)
    • Department for Social Development (DSDNI).

Q. Who pays for the test?

A. This is not the HMRC’s responsibility but often developers will have had these tests done before they offer houses for sale and will give the certificate to the purchaser. If the developer has not had a test done then the onus is on the person claiming the relief (i.e. the purchaser) to show that a test has been done and the house is eligible for the relief. This includes the purchaser paying for any test.

Q. What if I have no certificate?

A. The onus is on the claimant to prove that the house entitles the relief to be claimed. The certification process for verifying whether a house meets the Treasury’s zero-carbon standard is set out in legislation (The Stamp Duty Land Tax (Zero-Carbon Homes Relief) Regulations 2007).

Q. What does a certificate look like?

A. There is no set form for a certificate however it has to contain the following information:

  • The address of the building, including postcode,
  • Confirmation that the dwelling qualifies as a zero-carbon home
  • For dwellings in England and Wales only, the unique identifying number from the energy performance certificate if an energy performance certificate has been produced;
  • The accredited assessor’s full name,
  • The name and address of the accredited assessor’s employer, or if he is self-employed, the name under which he trades and his address, and
  • In relation to dwellings in England and Wales only, the accreditation scheme, if any, to which the accredited assessor belongs;
  • The date on which it was issued.

Q. Do flats qualify?

A. No – there were problems with incorporating flats into the test due to shared walls, communal space and heating facilities. The SDLT relief is currently restricted to the sale of new homes defined in primary legislation as a “building which has been constructed for use as a single dwelling, and has not been previously occupied”. This definition is designed to capture most new homes - including terraced homes, semi-detached homes and bungalows - but it excludes new flats. The Government is considering whether to extend the relief to new flats.

Q. Can I claim a relief for house that is not new?

A. No. The relief is for new build houses.

Q. Can I claim on the second or subsequent sale?

A. No. The relief is restricted to the ‘first point of sale’ of a new zero-carbon home. This fits in with the key objective of the measure, which is to kick-start the building of ZCHs by stimulating consumer demand. Once these homes are built we expect the benefit in terms of energy savings (reductions in carbon dioxide emissions) to remain in the home for many years. There would be no value to the taxpayer to extend the relief to second and subsequent sales.

Q. Why is the relief time limited?

A. To encourage the development of these houses now. It’s intended that all new houses are built to a zero-carbon standard will be mandatory by 2016, so a relief beyond this point would not represent value for money to the taxpayer. The exemption is time limited for 5 years until 30 September 2012 but before the end of the time limit the Government will review the effectiveness of the relief and consider the case for an extension.

Q. What about linked transactions?

A. If the relief is claimed for one home in series of transactions the relief will only apply to that one house which is zero-carbon e.g. linked transaction involving 10 homes worth total of £1M, relief is allowed only on the zero-carbon home - related to what its value is.

75A notional land transactions

Some have asked about how notional land transactions affected by the anti -avoidance legislation introduced at Finance Act 2007 should be notified to HMRC. HMRC wish to avoid any confusion that could arise if practitioners try to file an electronic return or a paper version in respect of 75A notional land transactions in addition to a return for the real transaction. Practitioners are therefore advised that they should notify details of the notional transaction separately and by letter to the Birmingham Stamp Office. The letter should set out the relevant details about the notional transaction.

Code of Practice 10 (COP 10) requests

Code of Practice 10 (COP 10) requests for information and advice should only be sent to Birmingham Stamp Office and not directed to the Stamp Taxes Policy Team in London. Our customer service standards require us to provide a 28-day turnaround on these. We are unable to promise early responses, although we will do our best to do so.

Surrender of a lease for little or no consideration

Where a lease is surrendered by operation of law no chargeable consideration is normally paid for the surrender. If the surrendered lease is registered, the Land Registry will need an SDLT60 self certificate in respect of the surrender except where a new lease of the same property has been granted - either expressly or by a deed of variation that takes effect as an implied surrender and regrant. Land Registry Practice Guide 26 (para 5.2) confirms that no SDLT60 is required in those circumstances.

If there is an express deed of surrender the Land Registry will always require an SDLT60.

Although as a matter of law a surrender of a lease is not an assignment of it, for SDLT purposes the surrender of a chargeable interest is treated as a disposal and acquisition of it under FA03/S43(3)(b), in other words it is treated as an assignment. HMRC therefore suggest that surrenders of leases are notified in exactly the same way as assignments of leases under S77(2A).

Provisions for relief from forfeiture of a lease

Q. What is the position where for example a mortgagee is seeking to obtain relief from forfeiture of a lease?

Various types of breach of leasehold covenants are within section 146 of the Law of Property Act 1925. It has provisions for relief from forfeiture of a lease in certain circumstances. It defines lessee and underlessee to include persons deriving title under them, such as a mortgagee.

Section 146(2) is one route available to a mortgagee. It retrospectively restores the lease (hence a mortgagee who has meanwhile been in possession could not be liable for mesne profits). One view. (Fisher & Lightwood, Law of Mortgage, 12th edition) is that the lease is restored for the lessee (but so that the mortgagee can sell it) in which case the mortgagee would not have personal liability to the lessor under the lease.

That subsection does not apply, for example, to forfeiture for non-payment of rent. The lessee or a person deriving title under it might apply for relief under some relevant other provision - Supreme Court Act 1981 section 38, County Courts Act 1984 section 138(9A)-(9C), Common Law Procedure Act 1852 sections 210 & 212.

If the lease is vested in the mortgagee (without a new lease) under such a provision it would be do so by way of security and so the vesting is exempt from SDLT (the lease does not become beneficially owned by the mortgagee, in satisfaction of the debt).

The other route is under section 146(4) of the Law of Property Act 1925. An underlessee can be granted relief by way of a new lease (not retrospective). If the old lease had been within SDLT there could be overlap relief for the SDLT on the new lease to the underlessee. That relief could also apply to a negotiated new lease taken by an underlessee or one which the lessee guarantor is required to take or is entitled to take in pursuance of the guarantee - in that case the lease to the guarantor does not have to replace the lessee's lease and I suppose that it might include an overriding lease taken by virtue of an authorised guarantee agreement under the Landlord and Tenant (Covenants) Act 1995.

Section 146(4) also applies to vest a new lease in a mortgagee. Overlap relief is not relevant but the vesting is exempt from SDLT as it is by way of substituted security and so subject to a proviso for redemption etc (not acquired beneficially in satisfaction of the debt).

None of these situations should trigger a charge to SDLT.

Previous issues of the SDLT Technical News

Issues of Technical News are current at the time of publication but may become outdated or incorrect with the passage of time. Such material should not be relied on as a permanent source of guidance. For the latest up to date information please refer to the SDLT Manual.

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