5% Tax Band for Stamp Duty Land Tax (SDLT)- The Effect on the Market

The April budget saw the introduction of the 5% SDLT tax band on properties over £1 million. Originaly announced by Alistair Darling in the March 2010 budget, this measure was created to finance the badly needed tax break for first time buyers exempting them from having to pay SDLT on any property below £250,000.00.
What has been the impact of the 5% band?
The overall consensus is that there it has had very little impact on the Property Market, as those buying property of £1 million plus are usually from the higher income bracket of property developers, stock-brokers, banker and wealthy foreign magnates such as the eastern European oligarchs!
Throughout the present economic crash the marketplace for £1million properties continues to grow, especially in areas such as central London with its prestige, status as a international financial centre and general shortage of housing matched with the rising demand.
The change in Stamp Duty rates means that a buyer of a property at £1.5 million will pay £75,000 Stamp Duty, an increase of £15,000! This coupled with other measures recently introduced (ongoing freeze in the inheritance tax allowance, the lowering of the threshold for the 40% tax band as well as, the 50% income tax band) all these weigh heavily on the higher end property buyer.
It is important to highlight that the new rate applies to the whole of the property price Not only in respect of the top slice over £1million.
The key date for the levying of Stamp Duty is the Completion Date rather than the date of the exchange of contracts. As the April Budget loomed near, various tactics were employed to make certain that property transactions completed before the introduction of the new 5% tax band. Those with Contracts with open Completion Dates (these may perhaps be contracts where Completion is subject to conditions to be performed) were reviewed to ascertain if Completion was possible to complete before 6th April. This was be particularly significant when it comes to newly built properties or those in the process of being built progress of the build was checked and can measures introduced to speed matters up. Some other examples will be those properties subject to Option Agreements with options to purchase being exercised sooner rather than later.
Another example is where Transactions were completed ahead of the 6th April deadline and the sellers were permitted to remain in occupation under licence until the new owner was ready to take possession. Strategies along these lines may not be without risk and need to be considered very carefully and specialist legal advice taken.
Additional factors that would have to be considered include the sellers tax position may possibly not have been wise to sell inside the current tax year especially if Capital Gains Tax allowances have been used up.

Then not surprisingly there is that well used ploy of apportioning the cost of the fixtures and fittings to bring the purchase price of the property below the £1million price tag. This would not surprisingly have to be credible to keep the HM Inland Revenue satisfied that this type of scheme was not a deliberate evasion of Stamp Duty Land Tax.
High end buyers of course have the capacity to pay for professional tax consultants who will be acquainted and practised in tax avoidance schemes however it is important to remember that although tax avoidance isn't illegal tax evasion is a criminal offence. Tax avoidance schemes must be notified to HM Inland Revenue and there is no guarantee that they will be accepted. HM Inland Revenue may review the tax position of a transaction up to six years after the event.