One of the biggest obstacles to developing a portfolio of properties has been the linked transaction rules of Stamp Duty Land Tax (‘SDLT’). These rules meant that if a property investor wanted to purchase several properties the rate at which Stamp Duty Land Tax was levied was based on the total cost of the properties. Thus, if the property investor purchased five properties at £150,000 each for a total cost of £750,000 the Stamp Duty Land Tax payable would be levied at a rate of 4% - £30,000. Under the new provisions, the property investor can elect to pay Stamp Duty Land Tax on the average value of the properties with a minimum rate of 1%. Using the above example, the Stamp Duty Land Tax would be levied at 1% giving an Stamp Duty Land Tax bill of £7,500 - a reduction of £22,500! The relief will be introduced in the Finance Bill 2011 with effect from Royal Assent.
No upper limit on the number of properties has been imposed, meaning that the new relief will override the current rule under which a purchase of six or more dwellings is treated as the acquisition of non-residential property.
This new relief on Stamp Duty Land Tax for bulk purchases is long awaited with organisations such as the National Landlord’s Association having lobbied for this for years. The concession is widely hailed as being the biggest boost that the Chancellor has given to the Property Market in the 2011 budget.
As well as potentially increasing the supply of rented properties, it is anticipated that it will stimulate activity in the property market especially at the lower end of the market.
The immediate effects of the concession on Stamp Duty Land Tax are anticipated to:
- Encourage institutions (such as pension funds) to invest in the residential market.
- Make it easier for the small property portfolio holder to exit the market finding it easier to sell their portfolio as a whole rather than individually.
- Encourage investors who hold their portfolio in their individual names to transfer them to limited companies to access commercial funding rather than BTL mortgages.
Coupled with the removal of the 2% conversion charge for Real Estate Investment Trusts, the relief with its effect on the property market as a whole and the rental market is a very welcome move and arguably the most effect boost to the property market of all the provisions in the Chancellors Budget.
The new Stamp Duty Land Tax concession on the bulk purchase of properties is welcomed by property developers and landlords.
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