SDLT: higher rates for additional dwellings etc

Finance Bill – in a Public Bill Committee am 12:15 pm ar 7 Gorffennaf 2016.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of David Gauke David Gauke The Financial Secretary to the Treasury 12:15, 7 Gorffennaf 2016

I beg to move amendment 29, in clause 117, page 167, line 20, leave out from beginning to “at”.

With this it will be convenient to discuss the following:

Government amendments 30 to 42.

Clause stand part.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

Let me say a word about clause 117, which introduces higher rates of stamp duty land tax on purchasers of additional residential properties. Owning a home is an aspiration for millions of people in our country. The Government are committed to helping people achieve that aspiration by supporting those who want to work hard, save and buy their own home. Home ownership is also a key part of the Government’s plan to provide economic security for working people at every stage of their lives.

In the previous Parliament the Government took significant steps to support housing supply and low-cost home ownership, and in the spending review and autumn statement in 2015 we went further by announcing a bold five-point plan for housing. The plan refocuses support for housing towards low-cost home ownership for first-time buyers. Alongside delivering 400,000 affordable housing starts by 2020-21, extending the right to buy to housing association tenants, accelerating housing supply and introducing the London Help to Buy scheme, the five-point plan includes the introduction of higher rates of SDLT on purchases of additional residential properties such as second homes and buy-to-let properties.

The higher rates are designed to help redress the balance between those people who are struggling to buy their first home and those who are able to invest in additional properties. The higher rates are 3% above the standard SDLT rate and took effect on 1 April 2016. The Government will use some of the additional tax collected to provide £60 million for communities in England where the impact of second homes is particularly acute. The tax receipts will also help towards doubling the affordable housing budget, which will help first-time buyers.

The changes made by clause 117 introduce the new higher rates of SDLT on purchases of additional residential properties. Several groups will not generally be subject to the higher rates: purchasers buying their first property; those replacing their main residence, even if they own more than one property; and those buying an additional property worth less than £40,000.

The Government ran a consultation on these changes ahead of the Budget. Several aspects of the policy design have been amended in response to the view expressed during that consultation. I have listened to those respondents who said that a longer grace period was required before the higher rates apply to homeowners who experience a gap or an overlap in property ownership when moving from their main home. For example, a purchaser may buy a new main residence before having the opportunity to sell their old one. The consultation proposed an 18-month grace period to purchase a new main residence after a former main home had been sold, or an 18-month period to dispose of an old one. In that case the Government would offer a refund from the higher rate. We have doubled the grace period to 36 months, which will help those moving home, including those moving in difficult circumstances.

The consultation also proposed an exemption from the higher rates for significant investors. We have decided not to do this. A significant number of consultation respondents put forward the view that exemption for large investors would be unfair. The Government have accepted this. A single higher rate for all investors, regardless of scale, is simpler and more equitable than disadvantaging smaller participants. The Government’s assessment is that this will have an insignificant effect on housing supply and we are confident that housing developments will remain attractive for corporate investors as well as potential homeowners. We are taking a wide range of steps to boost house building, resulting in an increase in the number of completions, from 102,570 in 2010 to 142,000 last year.

The Government have tabled three groups of amendments to rectify certain technical issues that have become apparent since the introduction of the higher rates. The first set, amendments 29 to 39, will ensure that so-called granny annexes will be exempt from higher SDLT when purchased with a main residence in the same transaction. We have decided that it would be unfair to change the higher rate when someone buys a main house that includes self-contained living space for an elderly relative. The Bill as drafted would usually but not always exclude that, so we are amending it to put this beyond doubt. An annex will be defined by objective criteria. It must be on the same site as the main home and worth no more than one third of the total transaction value to ensure that the regime remains robust against avoidance. I again thank my right hon. Friend Sir Eric Pickles for bringing this issue to my attention.

The second correction, in amendment 40, will allow the Government to ensure that those who use Islamic finance to purchase their main residence will not be unfairly caught by the higher rate. This will ensure that the Islamic finance provisions are consistent with those that already exist within SDLT legislation.

Finally, we are introducing a power to make wholly relieving changes by regulation in amendments 41 and 42. These will allow us to react quickly if another unintended consequence, such as the treatment of annexes, comes to light, and they will ensure that taxpayers are not disadvantaged unnecessarily while waiting for the changes to come into force.

In summary, clause 117 seeks to redress the balance between investment and home ownership and supports owner-occupation and first-time buyers. I hope that it has the Committee’s support.

Photo of Rebecca Long-Bailey Rebecca Long-Bailey Shadow Chief Secretary to the Treasury, Member, Labour Party National Executive Committee 12:30, 7 Gorffennaf 2016

As we have heard, clause 117 implements the higher rates of SDLT, or the 3% surcharge, on the purchase of additional residential properties by individuals and the purchase of any residential properties by companies. The measure has effect from 1 April 2016. The Government’s stated intention is to support home ownership and first-time buyers. The measure is expected to bring in £3.7 billion in additional revenues between this financial year and 2020-21. Clearly it is an important measure and we are broadly supportive. However, as ever, clarification on some points would be welcome.

The Government have stated that they will use some of the tax take

“to provide £60 million for communities in England where the impact of second homes is particularly acute” and that the receipts

“will help towards doubling the affordable housing budget.”

I would like to press the Minister on those points. As I am sure he knows, Labour Members are not impressed with the present and previous Governments’ track records on housing. They have presided over six years of failure to tackle the crisis in the market. There are 201,000 fewer home-owning households than in 2010, and home ownership has fallen from 67.4% in 2009-10 to 63.6% in 2014-15. Most drastically, the number of under-35s who own a home has fallen by 20% since 2009-10.

The Government’s record on affordable housing is equally disappointing. Last year the number of affordable homes built was the smallest in more than two decades: 9,590 homes for social rent, compared with 33,180 delivered during Labour’s last year in office. This Government have failed to deliver one-for-one replacements for homes sold through the right to buy; instead, only one is being built for every eight sold. Their “affordable rent” is not affordable for many families, particularly in London, where it could swallow up to 84% of the earnings of a family on the average income and require a salary of up to £74,000. Will the Minister clarify how the doubling of the affordable housing budget will be used effectively to support home ownership across the country? Will he also identify specifically which communities in England are in line for the £60 million fund, and in what form?

The Government conducted a consultation on these measures from December 2015 to February this year, a process that the Chartered Institute of Taxation has labelled inadequate. Stakeholders are concerned that the consultation ran for only five weeks and that the draft legislation was not published until two weeks before the measure took effect on 1 April 2016. Can the Minister provide some assurance that due consultation has taken place on these big changes to the SDLT regime?

Furthermore, there have been queries about what will happen in cases of joint purchase. If a property is purchased by more than one buyer and the higher rates apply to any one of them, the surcharge will apply to the whole of the chargeable consideration. The Government say that the measure is meant to support home ownership and first-time buyers, but does this provision not bring parents assisting their children to buy a first home into the scope of the surcharge, as the Institute of Chartered Accountants has suggested?

While Labour Members welcome efforts to cool the buy-to-let market in favour of first-time buyers, the new legislation will make an already-complex tax even more complex. It would be sensible to keep the issue of joint ownership by parents and children under review, as their options for assisting each other to purchase property are significantly restricted by the new legislation. I would welcome the Minister’s thoughts on that.

Finally, before I turn to Government amendments 29 to 42, clause 117(16)(1) provides that ownership of a dwelling outside the UK shall be taken into account in deciding whether the surcharge applies to the purchase of a dwelling in the UK. The Chartered Institute of Taxation highlighted some practical difficulties with determining ownership of a property in certain jurisdictions, and whether it is a main residence. I am therefore concerned about compliance. As we know, there is a large problem in the UK property market, especially in London, where non-UK nationals buying property are pushing up house prices. Will the Minister therefore confirm what measures are in place to ensure compliance by overseas property owners?

I note that Government amendments 29 to 39 take action to address the tax treatment of dwellings with annexes or granny flats, as discussed. The changes mean that the surcharge will not be applicable when a granny flat is the only reason the higher rate would apply. I am aware of what stakeholders say and of wider reports in the media about the issue, and I am pleased that the Government have taken steps to address it.

Government amendment 40 clarifies the situation for dwellings purchased under alternative finance arrangements, so that where the surcharge is applicable the higher rates apply to the person occupying the property, not to the financial institution. Again, that is sensible, and it mirrors the situation with annual tax on enveloped dwelling. Finally, Government amendments 41 and 42, according to the explanatory note, will give the Treasury powers to change the rules on what is a higher rates transaction for the purpose of removing transactions from the higher rates.

To conclude, we support all the measures in this group, although we do have some concerns, which I have highlighted. I hope that the Minister will provide assurance.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

The hon. Lady made a number of points about housing that we could spend a long time debating. I will try to resist that temptation, but let me make one point: in the previous Parliament, more council homes were built than in the whole period of the previous two Labour Governments. We are committed to delivering a large number of affordable homes. Annual housing starts are at an eight-year high, and last year housing completions rose by more than 10%. A £1 billion loan fund will provide funds to small and medium-sized enterprises, such as small house builders. I could say more, but I will resist the temptation.

A number of technical points were made about the measures covered by this group. First, there was a point about how we deal with joint purchasers. We were asked why we do not use an apportionment approach for joint purchasers. A move to an apportionment system would increase complexity in the tax system and increase the risk of non-compliance. The Government’s approach is simpler than an apportionment system and has been settled on after careful consideration. Where a property is purchased jointly, the higher rates will apply if the property is an additional property of one or more purchasers.

As to whether that is unfair to parents trying to help their children on to the property ladder, I do not think so. Parents may help their children on to the property ladder without being subject to the higher rates of SDLT—for example, a parent can offer direct financial support, or become the guarantor of the child’s mortgage—but if the parent purchases a property jointly with the child, the transaction may be subject to the higher rate if the purchase is an additional property for the parent. Offering exemption for properties purchased jointly with children would add complexity to the tax system, reduce revenue and increase compliance risks.

On the impact on the buy-to-let market, the policy is not expected to have an effect on rents. SDLT will be paid only once, when the property is purchased. I was asked why the consultation period was short. Let me reassure the Committee that the consultation process was full and open, and that respondents’ views were taken into account. I accept that the consultation period was shorter than 12 weeks, but that was so that we could properly analyse the responses in time for the final policy design to be confirmed, and for the policy to be in force, by 1 April. We recognise the effects on the property market of pre-announcing changes to SDLT rules, so there was a careful balance to be struck between providing stakeholders with the chance to have their say and not prolonging market disruption.

On treating homes abroad in the same way as homes in the UK, SDLT is a self-assessed tax, and those making returns need to complete returns honestly. It would be unfair to treat those with first homes abroad more beneficially than those with first homes in the UK. Her Majesty’s Revenue and Customs monitors compliance and will check returns carefully.

The Department for Communities and Local Government is consulting on how the £60 million will be spent in communities with a large number of second homes. I am not sure that there is much more I can say on that at this point. It is a matter DCLG is leading on. I hope that those points are helpful to the hon. Member for Salford and Eccles and the Committee. I hope the clause and the amendments to it will stand part of the Bill.

Amendment 29 agreed to.

Amendments made: 30, in clause 117, page 167, line 21, at end insert

“meet conditions A, B and C”

Amendment 31, in clause 117, page 167, line 22, leave out

“Condition A is that the portion”

and insert

“A purchased dwelling meets condition A if the amount”

Amendment 32, in clause 117, page 167, line 25, leave out “Condition B is that” and insert

“A purchased dwelling meets condition B if”

Amendment 33, in clause 117, page 167, line 30, at end insert—

‘(4) A purchased dwelling meets condition C if it is not subsidiary to any of the other purchased dwellings.

(5) One of the purchased dwellings (“dwelling A”) is subsidiary to another of the purchased dwellings (“dwelling B”) if—

(a) dwelling A is situated within the grounds of, or within the same building as, dwelling B, and

(b) the amount of the chargeable consideration for the transaction which is attributable on a just and reasonable basis to dwelling B is equal to, or greater than, two thirds of the amount of the chargeable consideration for the transaction which is attributable on a just and reasonable basis to the following combined—

(i) dwelling A,

(ii) dwelling B, and

(iii) each of the other purchased dwellings (if any) which are situated within the grounds of, or within the same building as, dwelling B.”

Amendment 34, in clause 117, page 167, line 36, leave out from beginning to “one” and insert “only”.

Amendment 35, in clause 117, page 167, line 37, after “dwellings” insert

“meets conditions A, B and C”.

Amendment 36, in clause 117, page 167, line 38, leave out from “dwelling” to “is” in line 39 and insert “which meets those conditions”.

Amendment 37, in clause 117, page 167, line 48, at end insert—

‘( ) Sub-paragraphs (2) to (5) of paragraph 5 apply for the purposes of sub-paragraph (1)(c) of this paragraph as they apply for the purposes of sub-paragraph (1)(c) of that paragraph.”

Amendment 38, in clause 117, page 168, line 9, leave out from beginning to “at”.

Amendment 39, in clause 117, page 168, line 10, at end insert

“meets conditions A and B.

‘( ) Sub-paragraphs (2) and (3) of paragraph 5 apply for the purposes of sub-paragraph (1)(c) of this paragraph as they apply for the purposes of sub-paragraph (1)(c) of that paragraph.”

Amendment 40, in clause 117, page 171, line 8, at end insert—

“Alternative finance arrangements

14A (1) This paragraph applies in relation to a chargeable transaction which is the first transaction under an alternative finance arrangement entered into between a person and a financial institution.

(2) The person (rather than the institution) is to be treated for the purposes of this Schedule as the purchaser in relation to the transaction.

(3) In this paragraph—

“alternative finance arrangement” means an arrangement of a kind mentioned in section 71A(1) or 73(1);

“financial institution” has the meaning it has in those sections (see section 73BA);

“first transaction”, in relation to an alternative finance arrangement, has the meaning given by section 71A(1)(a) or (as the case may be) section 73(1)(a)(i).”

Amendment 41, in clause 117, page 173, line 23, at end insert—

“Power to modify this Schedule

18 (1) The Treasury may by regulations amend or otherwise modify this Schedule for the purpose of preventing certain chargeable transactions from being higher rates transactions for the purposes of paragraph 1.

(2) The provision which may be included in regulations under this paragraph by reason of section 114(6)(c) includes incidental or consequential provision which may cause a chargeable transaction to be a higher rates transaction for the purposes of paragraph 1.”

Amendment 42, in clause 117, page 174, line 7, at end insert—

‘( ) Paragraph 14A of Schedule 4ZA to FA 2003 does not apply in relation to a land transaction of which the effective date is, or is before, the date on which this Act is passed if the effect of its application would be that the transaction is a higher rates transaction for the purposes of paragraph 1 of that Schedule.”—

Clause 117, as amended, ordered to stand part of the Bill.

Clause 118