Tax briefing: the Autumn Statement delivered a stamp duty land tax saving for many housebuyers – but adds to the pressure to settle before 31 March in Scotland

As expected, the Autumn Statement delivered by the Chancellor on 3 December 2014 was highly political as the last one before the general election in May 2015. More surprising was that it also contained a good deal of technical substance, which is rare at this stage of a Parliament.

Two of the key announcements, the amendments to stamp duty land tax (SDLT) and the introduction of a new “diverted profits tax”, are considered below, together with a look at what happens next, in light of the upcoming election.

Slab to slice, and very nice!

The headline announcement was the wholesale change to the SDLT regime for residential properties. The radical change is the move to a “slice” basis of tax, a gradually increasing system of bands more akin to how income tax operates, as opposed to the “slab” basis of a flat rate applicable to the whole consideration. If this sounds familiar, it is because the welcome move from “slab” to “slice” is exactly what the Scottish Government devised, announced and will introduce on 1 April 2015 as the new Scottish land and buildings transaction tax (LBTT).

The new SDLT regime applies to the whole of the UK, including Scotland. What this means for the Scottish real estate sector in 2015 is two new systems, the new UK SDLT system (in force from 4 December 2014) and then from 1 April 2015, the new Scottish LBTT. The new UK SDLT system results in a tax saving for 98% of purchasers of residential properties, costing the UK Government £800 million a year. All purchasers of UK homes below £937,500 will pay less SDLT under the new regime than under the old, as will purchasers of homes between £1m and £1,125,000 (due to the previous sharp increase in SDLT at £1 million under the “slab” system).

When LBTT was being considered, it was billed as revenue neutral, with 90% of Scottish residential purchasers paying less LBTT than SDLT and only those homes purchased above £325,000 resulting in a higher tax charge. Unfortunately for the Scottish Government, when compared to the new SDLT regime, the tipping point at which purchasers will pay more under LBTT reduces to £254,000, which puts an end to its claim that 90% of home buyers will be better off under the new regime. All homes purchased above £254,000 will be more expensive, at the higher end of the market significantly more so, after 1 April 2015 in Scotland than the rest of the UK.

Some commentators have suggested that there is now a case for John Swinney to introduce an “intermediate” LBTT rate for homes costing more than £250,000. In the absence of any amendments by the Scottish Government, there is a good incentive for purchasers of residential properties to push things through before the end of March, and residential conveyancing solicitors are likely to be kept very busy in March 2015
as a result.

“Google tax”: more harm than good?

While the SDLT reform has been welcomed and thought by many to have been long overdue, “diverted profits tax” (or media-coined “Google tax”) has received a more mixed review. It has been suggested that it is a kneejerk reaction to the public sentiment against multinationals which have been, through legitimate tax planning, reducing their UK corporation tax liability.

The new diverted profits tax will apply to “business activities between connected entities that are set up in order to achieve an unfair tax advantage”. The tax will be applied using a rate of 25% from 1 April 2015. The expected yield of the tax is around £1 billion, although some commentators have questioned whether this yield will be outweighed by the harm done to UK businesses seeking to expand internationally.

What happens next?

The next stop is the Budget, which will presumably be in March 2015. But Parliament is dissolved on 30 March in anticipation of the general election on 7 May. This means that the next Finance Bill will be a short one (although it should contain legislation relating to some of the 2014 Autumn Statement proposals), and will require the co-operation of the opposition in order to be enacted. There will therefore need to be a more substantive, second Finance Bill, published in late spring or early summer. If there is a change in the complexion of the Government – whether a differently constituted coalition or one of the two main parties governing alone with or without a majority, there is almost certain to be a second emergency budget in June.

The Author
Christine Yuill, senior associate, Pinsent Masons LLP
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