The consultation period for the regulations needed to bring in the government's 3% penal SDLT rate on purchase of additional properties has now closed. There will be a short wait to see whether the rush to bring it into force in time for April 2016 means a failure to address some of the complexity and unintended consequences that seem to come out of the proposals.
Completion of the SDLT Return is already a messy enough task, so the requirement to provide further personal data to HMRC to deal with this new layer of tax isn’t going to make things easier - perhaps that is just part of the intended deterrent effect.
As for unintended consequences, we have seen responses that have urged a review of the impact on the increasingly common parental contributions to their off-springs' purchases, suggesting that up to a certain percentage threshold there should be no penalty. If the new rules catch things like a 10% contribution to pay a deposit, parents will be forced to consider (a) giving the money to their children, or (b), constructing some form of loan structure which may in turn be viewed by HMRC as an artificial way to avoid the higher tax.
Responses have also included requests to recognise the impact of the rules on purchases of existing residential property by developers for redevelopment. If this isn’t taken into consideration there will be an extra 3% tax bill which will do little to encourage greater housing numbers.
Potential solutions to this problem include exempting purchases with the benefit of planning permission for re-development as well as a right to claim a refund if planning permission is secured for redevelopment within 18 months - a parallel with their proposal for refunds for those fortunate enough to be able to afford to buy their new home up to 18 months before selling their old home.
A common theme from many involved in the consultation is the struggle to see the fairness in allowing institutional buy to let investors a more favourable tax treatment than small scale, so-called amateur investors. Given that it wasn't the small scale operators who caused the last crash but rather the institutions, surely it isn’t fair for these to be handed a favourable deal? Clearly though, investment by institutions in the housing-to-rent market in order to underpin a greater supply of housing generally shouldn’t be deterred. However, the provision of more generic incentives to encourage housing numbers instead of removing the level playing field in the buy to let sector would seem fairer. There is of course no guarantee that the institutional money will go into new homes. It may be just as likely used to amass prime existing stock.
We now just have to wait and see.
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