Clause 6 - Reduction in higher CGT rate for residential property gains to 24%

Finance (No. 2) Bill – in a Public Bill Committee am 9:25 am ar 21 Mai 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of Pauline Latham Pauline Latham Ceidwadwyr, Mid Derbyshire

With this it will be convenient to debate clauses 7 to 11 stand part.

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

Clauses 6 to 11 are related to the property tax measures in the Bill. I hope that Members will forgive me, but this is a slightly longer speech, as I will talk through each clause. Indeed, it is the longest speech that I plan on giving today, although it is not too long—please do not have a heart attack; I will not be reading every one of these pieces of paper.

Clause 6 cuts the higher rate of capital gains tax, or CGT, charged on residential property gains from 28% to 24% from 6 April 2024. CGT is of course charged on the disposals of buy-to-lets and second homes. Main homes are exempt through private residence relief, which means for that the majority of residential property sales no CGT is paid at all. Where a disposal is liable to CGT, gains are taxed at a lower rate of 18% for any gains that fall within an individual’s basic rate band and at a higher rate for any gains above that.

The 28% higher rate was deterring some sales of residential properties, so the Government announced a 4 percentage point cut to the higher rate at spring Budget 2024. That will encourage more landlords and second home owners to sell their residential properties, making more homes available to the market for a variety of purchasers, including first-time buyers. The OBR forecasts that there will be around 60,000 more residential property transactions over the next five years owing to the cut. As more homes are bought and sold, the Exchequer is expected to raise an additional £690 million in revenue over that period. There will be no change to the lower rate of 18% for private residence relief.

Clause 7 concerns multiple dwellings relief, or MDR, which is a bulk purchase relief in the stamp duty land tax regime. The clause abolishes multiple dwellings relief from 1 June 2024. Multiple dwellings relief allows anyone purchasing two or more dwellings in a single transaction or in linked transactions to calculate their stamp duty based on the average value of the properties purchased, as opposed to their aggregate value. Multiple dwellings relief was introduced in 2011 with the intention of promoting investment in the private rented sector, but a recent external evaluation found no strong evidence that it has done so, meaning that the relief is not cost-effective and is therefore not acting as intended.

His Majesty’s Revenue and Customs has seen a high number of incorrect and abusive claims for the relief. Those have been driven by tax repayment agents, who often convince private individuals to make relief claims for the purchase of two dwellings when individuals have in fact only purchased one. One such example is somebody buying a large house with a separate indoor entertainment area, including a swimming pool and toilet, and that being counted as two properties when it is transparently one.

The changes made by clause 7 will abolish multiple dwellings relief for property transactions that complete on or after 1 June 2024. However, for contracts that were exchanged on or before 6 March 2024, relief will continue to apply regardless of when the contracts complete. The change will not impact those purchasing a single property. It will only increase the stamp duty payable by individuals or businesses purchasing two or more properties in a single transaction or as part of the same deal. Individuals or businesses purchasing six or more dwellings will continue to qualify for the non-residential rates of SDLT.

Clause 8 makes changes to ensure that first-time buyers’ relief from stamp duty land tax can be accessed by those purchasing new residential leases through a nominee or bare trustee, including victims of domestic abuse. A nominee is a person who holds the legal title of a property, while the beneficial ownership—the person who ultimately owns or controls the assets—is held by another person. A bare trust is a trust under which property is held by a person as trustee for another person who is fully entitled to all of the capital and income of the trust.

The measure also changes the definition of first-time buyers to ensure that individuals who use such arrangements cannot claim relief more than once. First-time buyers’ relief from SDLT is available where an individual who has not previously owned a dwelling purchases a home they intend to use as their only or main residence, but that is not currently available to individuals purchasing a new residential lease through a nominee or bare trustee.

The changes made by clause 8 will benefit certain first-time buyers of residential leasehold properties purchasing through a nominee or bare trustee, reducing the up-front cost of buying a home by allowing them to claim the relief they are entitled to. The changes bring those purchasers in line with purchases of residential freeholds and pre-existing leases using similar arrangements.

The measure is part of the Government’s commitment to supporting home ownership by reducing the up-front costs for first-time buyers. The measure also supports the Government’s strategy on supporting victims of domestic violence by ensuring that they can claim first-time buyers’ relief where they choose to buy a home through arrangements that preserve their anonymity from abusers.

Clause 9 makes changes to ensure that all registered providers of social housing are exempt from stamp duty land tax when purchasing housing with assistance from a public subsidy. The SDLT legislation includes an exemption for registered providers of social housing when they buy property using public subsidy to support the provision of social housing. A registered provider is a provider who is registered with the regulator of social housing.

The legislation has become out of date, causing uncertainty for some registered providers, such as local authorities, about their eligibility for the exemption. There is also uncertainty around the eligibility for the exemption where public subsidy is recycled for the provision of new social housing. That is where housing providers are allowed to keep the public subsidy originally given for a property when it is sold to purchase other social housing, for example where a property is sold under the right-to-buy scheme.

The changes made by clause 9 update the list of public subsidies to include public grants that have been permitted to be retained and recycled to qualify for the exemption, such as where property is sold under right to buy and the receipts from the sale are used to help fund the purchase of social housing. The clause will also amend out-of-date references in legislation to the exemption, such as removing references related to Scotland and Wales where land transaction taxes have been devolved.

Clause 10 makes changes to ensure that all public bodies are exempt from the special 15% rate of stamp duty land tax when purchasing residential property. The special 15% rate of SDLT was introduced in 2013 as part of a range of anti-avoidance measures designed to disincentivise private individuals from moving their property into a company without a commercial reason and selling the company rather than the property itself to avoid an SDLT charge.

The charge is currently levied on non-natural persons, such as companies, purchasing property valued at over £500,000 for no commercial purpose. Public bodies are not using corporate or other envelopes to avoid SDLT and so are not engaging in behaviour that the 15% higher rate was designed to counter. Despite that, public bodies were not exempt from paying the 15% special rate of SDLT. The changes made by clause 10 will remove public bodies from the 15% rate of SDLT. That change will reduce the tax burden on public bodies that acquire residential property valued over £500,000, ensuring that public money being spent is used to its maximum effect.

Finally, clause 11 makes changes to restrict the scope of agricultural property relief and woodlands relief to property located in the UK. These are two long-standing reliefs from inheritance tax. Agricultural property relief is available on the agricultural value of land and other property that is owned and occupied for the purposes of agriculture. It will usually be land or pasture that is used to grow crops or to rear animals. The rationale for that relief is to prevent farms from needing to be sold or broken up on the death of the owner in order to pay any inheritance tax due. Woodlands relief is available on the value of trees at death. Growing trees to maturity may take several generations and, without the relief, they would otherwise be taxed on each successive death.

Action was taken in the Finance Act 2009 to expand the scope of both those reliefs to property located in the European economic area. That legislation was necessary to ensure compatibility with EU law, and it took effect from 22 April 2009. Now the UK has left the EU, the main change made by clause 11 is to return the scope of agricultural property relief and woodlands relief to property located in the UK from 6 April 2024. The clause also means that agricultural property relief will no longer apply to property in the Channel Islands or the Isle of Man from 6 April 2024. The existing inheritance tax treatment is anachronistic, and it is right that we update the scope of the relief accordingly.

These clauses boost transactions in the property market while raising revenue. They remove the opportunity for abuse of multiple dwellings relief, and give public bodies certainty about their exemption from SDLT. I commend the clauses to the Committee.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury) 9:45, 21 Mai 2024

Clause 6 applies to residential property gains by individuals, trustees and personal representatives. As the Minister set out, it reduces the higher rate of CGT that applies to such gains from 28% to 24%. The new rate will apply to disposals made on or after 6 April 2024. As we understand it, the lower rate is intended to remain at 18%, and the CGT rates that apply to carried interest gains remain unchanged.

The Government’s policy paper on this matter claims that the measure will be revenue positive for the Treasury and will generate more transactions in the property market, benefiting individuals who are looking to move home or get on to the property ladder. The Opposition will not oppose moves that reduce the rates of tax while also raising greater income. However, I would like to ask the Minister for more detail on the Exchequer impact of this measure. The Government’s policy paper reports expected spikes in revenue of an additional £310 million and £350 million in 2024-25 and 2025-26 respectively. That then falls significantly to an additional £45 million in 2026-27, and to just £5 million by the end of the forecast period in 2028-29. I would be grateful if the Minister set out his explanation for this pattern of expected income. Is he confident that there will be a permanently higher level of income as a result of this change after the end of the forecast period?

Clause 7 abolishes multiple dwellings relief—a relief from stamp duty land tax available on the purchase of two or more residential properties in a single transaction or linked transactions. The change will apply to purchasers of dwellings in England and Northern Ireland that have an effective date of transaction on or after 1 June 2024.

SDLT is a tax on the purchase of land or property, and ordinarily the amount of tax chargeable is calculated on the basis of the total amount paid for land or property. MDR, meanwhile, was introduced in 2011 with the intention of reducing a barrier to investment in residential property and to promote the private rented sector housing supply. We know that the Government evaluations have shown very little evidence that MDR achieved its original aims in a cost-effective way. We believe that clamping down on dubious claims and abusive tax reliefs is the right thing to do, so we will support the clause, but I have a few points of clarification to which I would be grateful for the Minister’s response.

First, I would like to ask the Minister about the reasoning behind the introduction of MDR in 2011. I understand that in September 2010, the coalition Government said in response to a consultation that

“the Government will not be taking these proposals forward at the present time”.

However, at the Budget of March 2011, a few months later, they announced that they would indeed introduce changes to the SDLT rules for bulk purchases of residential property. Does the Minister know why the Government at the time changed their mind?

Secondly, the Minister referred to abuse of the relief, so I would be grateful if he shared with us any figures or estimates of the cost of abuse of MDR since its introduction in 2011. Thirdly, we note that the Government said that they will engage with the agricultural industry to assess whether there are specific impacts of their changes to MDR that should be given further thought. Will the Minister let us know whether he is consulting with any other sectors?

Finally, the Chartered Institute of Taxation has indicated that for the domestic buyer in the build-to-rent sector, the divergence between the rates of SDLT applicable to residential property and those in the non-residential sector is large. There is a great deal of complexity in the system, so is the Minister aware of the potential for anomalies and for new behaviour to emerge around the acquisition and definition of property? I would welcome his assurance that he will work closely with relevant stakeholders to ensure there are no unintended consequences to the changes in the clause.

Clause 8 makes changes to the rules for claiming first-time buyer relief from stamp duty land tax in cases where the purchaser is buying a new lease via a trust or nominee. It applies to purchasers of dwellings in England and Northern Ireland, with an effective date on or after 6 March. We know there have been instances of first-time buyers using trusts or nominees to conceal their identities to protect themselves from behaviours such as domestic violence and stalking. The clause corrects issues arising over the eligibility of such claims. It provides an amendment to correct a defect in the relief in order to ensure that the underlying buyer, not the nominee, is eligible for SDLT, and we will not oppose it.

As we have heard, clause 9 amends out-of-date references and definitions used in legislation relating to the SDLT exemption for registered providers of social housing. As the explanatory notes make clear, that is to ensure that all registered providers of social housing that purchase property with the assistance of a public subsidy are not liable for SDLT. The measure seeks, first, to update outdated references following changes to social housing legislation; secondly, to extend the definition of public subsidy to include receipts from the disposal of social housing; and finally, to amend the definition of registered providers of social housing to confirm that certain entities such as English local authorities are eligible for the exemption, which removes an uncertainty.

The changes are set to apply to transactions on or after 6 March 2024, but we understand from stakeholder representations that there is some uncertainty relating to the “clarifications” set out in the measure. Can the Minister confirm whether purchases made before 6 March by local authorities will be treated as separate to this clause, or has any scope been given in the exemption for those purchases made before that date?

Clause 10 removes public bodies from the scope of the higher rate of SDLT of 15%. As the explanatory notes set out, that is consistent with the treatment of public bodies in relation to the annual tax on enveloped dwellings, which does not apply to public bodies. Given that this is a corrective measure, we will not oppose it, although the Chartered Institute of Taxation has pointed out that with the measure not being retrospective, there are concerns among stakeholders. We understand, again, that the measure will apply from 6 March, the date of the Budget when the measure was announced. Can the Minister clarify what the situation will be for a public body such as a local authority that may have incurred a 15% SDLT liability in the weeks immediately before this change was announced?

As the Minister set out, clause 11 restricts the scope of agricultural property relief and woodlands relief to property located in the UK. As the Government’s policy paper states, the former measure was put in place to ensure compatibility with EU law; it expanded the scope of agricultural property relief and woodlands relief to property located in the European economic area. Now that the UK has left the EU, this measure reverses those changes, so that property located in the EEA will again be treated the same as property located in the rest of the world. This is a technical measure, and we will not oppose it.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Photo of Pauline Latham Pauline Latham Ceidwadwyr, Mid Derbyshire

With the leave of the Committee, I will put the Question on clauses 7 to 11.

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

If I may respond briefly, I will answer the perfectly reasonable questions raised by the hon. Member for Ealing North in relation to several points in multiple areas. Regarding the overall impact, and if I may reference the change of the capital gains tax rate from 28% to 24%, the OBR estimates that this costing will have a positive impact beyond the current forecasting period and generate a small long-term yield, too. Of course, beyond the forecasting period, it is difficult to estimate the exact amount.

On the points that the hon. Gentleman raised about MDR and other measures, it is interesting that although there are examples of abuse, it is also the case that only 32% of businesses buying property to let said that this relief had an important influence on their purchase decision at all and only 45% were aware of multiple dwellings relief before making a purchase decision. That feeds into the overall picture of MDR not fulfilling the original intent and purpose, which of course was to support investment in the private rented sector. Again, it is building the picture that the relief is no longer cost-effective. The Government are continuing to engage with stakeholders in the build-to-rent sector and other sectors to ensure that we understand their concerns and we will continue to listen to representations made to highlight any exception or unforeseen impacts that the abolition of MDR could have in the future.

I welcome the hon. Gentleman’s welcoming of many of the other measures. He asked whether they would be applied before the April deadline. They will not be applied retrospectively—for example, the updates on the registered social landlord exemption will not be applied retrospectively.

The hon. Gentleman mentioned the number of public bodies that have paid stamp duty at the 15% higher rate. The number of transactions—of those impacted previously —has been very small, and we therefore do not anticipate a huge impact.

Clauses 7 to 11 ordered to stand part of the Bill.