Finance Bill

Further written evidence submitted by the Association of Taxation Technicians (ATT) (FB 17)

A Introduction

1 Clause 117 introduces new (higher) rates of SDLT for certain purchase of dwellings where, in the words of paragraph 83 of the Explanatory Note, "an individual owns another major interest in a dwelling at the end of the day of purchase". The higher rates also apply to company purchasers but the focus of this submission of evidence is exclusively on purchases by individuals.

2 The ATT is concerned that the legislation, as currently drafted, will have unintended consequences or at least have consequences which go significantly wider than was understood when the proposals were originally announced.

3 Those concerns relate to the following aspects of the Clause:

· The exclusion from the higher rates of SDLT for replacement properties requires the intentions of the purchaser in respect of the purchased dwelling to be determined "on the effective date of transaction" and therefore ignores any subsequent change of intention;

· The situation where one spouse or civil partner is replacing a main residence but the other is not can result in the denial of the replacement exclusion for both of them;

· The brevity of the period for claiming a refund of the higher rates SDLT where a transaction ceases to be liable to higher SDLT rates because of the subsequent sale of the individual’s former main residence can result in the higher rates applying simply because a land transaction return is not amended within three months of the effective date;

· The situation can arise that a fractional interest in a property has been inherited (and necessarily retained) in advance of the purchase of an individual’s own main residence thereby requiring the application of the higher rates of SDLT to that subsequent purchase.

4 These concerns are expanded in sections B to E below.

ATT commentary

B Determination of intention and consequences if intention changes

1 Paragraph 3(6)(a) of new Schedule 4ZA, Finance Act 2003 ("the Schedule") provides that the first condition that must be present for a purchased dwelling to qualify as a replacement of a purchaser’s only or main residence is that "on the effective date of the (transaction concerned) the purchaser intends the purchased dwelling to be the purchaser’s only or main residence" (emphasis supplied).

2 This appears to have potentially anomalous consequences if the eventual actual use of the property is different from what was originally intended.

3 The ATT considers that there could be a case for including a provision to enable amendment of a land transaction return in the event of such a divergence between the original intention and the eventual use so that the SLT rates are determined by the reality of the situation rather than an unrealised intention.

C Implications of treating spouses or civil partners as if they were a single unit

1 Complications arise under the proposed provisions when one spouse or civil partner is replacing a main residence but the other is not.

2 Consider the situation of a newly married couple (A and B) as follows:

· A owned Property 1 as their main residence before selling it on 30 June 2015 and moving into rented accommodation.

· On 30 December 2015, A and B (who was also previously living in rented accommodation) married and then lived together in rented accommodation.

· On 30 April 2016, A and B jointly purchased Property 2 – a buy-to-let. That transaction was not a higher rates transaction for either of them as they each only owned one property at the end of the day of that transaction.

· On 30 June 2017, they jointly buy Property 3 which they move into as their new marital home.

· When the provisions of paragraph 3(6)(a)-(d) of the Schedule are applied to these circumstances for each of A and B (as paragraph 2(3) requires):

(1) A meets all of the conditions for replacement main residence relief but

(2) B fails under paragraph 3(6)(b) because of the inclusion in that condition of the words ‘at the time’ and

(3) B also fails under paragraph 3(6)(c) because Property 1 was never the only or main residence of B.

· Because the purchase of Property 3 is a higher rates transaction for B, it is (through paragraph 2(3)) also a higher rates transaction for A despite the fact that when considered in isolation the purchase of Property 3 was a replacement property for A.

· The denial of replacement relief to A in this situation seems anomalous. The critical chronology also has the potential to distort appropriate decisions by those contemplating both marriage (or civil partnership) and the purchase of property.

3 A similar but more extreme example of the problem created by the proposals appears to have the potential to arise for couples even without the purchase of any buy-to-let property.

4 Consider the situation of a newly married couple (C and D) as follows:

· C owns Property 1 and has lived in it as their main residence.

· D had been living in rented accommodation.

· C and D marry and live for a short while in D’s rented accommodation.

· C and D then jointly purchase Property 2 and move into it as their marital home. As C owns more than one dwelling at the end of the day, the purchase of Property 2 is at that time subject to the higher rates of SDLT. Paragraph 2(3) means that this applies equally to D’s purchase despite the fact that D has never owned another dwelling.

· C retains ownership of Property 1 for a short time but eventually sells it within three years of the purchase of Property 2.

· In considering whether C and D are entitled to a repayment of the higher rates of SDLT paid on Property 2 in consequence of the sale of Property 1, the provisions of paragraph 3(7) have to be considered.

· When applied to C:

(1) all the paragraph 7(a)-(c) tests are satisfied but

(2) whilst D meets the tests in paragraph (a) and (b), they fails to meet test (c) because Property 1 was never their only or main residence.

· D’s lack of entitlement to replacement relief appears to deny relief to C as well because of the operation of paragraph 2(3).

· Briefly stated, the concern is that parts of the legislation appear to proceed on the presumption that marriage (or civil partnership) is a tax avoidance device.

D Time limit for amending SDLT return when transaction ceases to be a higher rates transaction

1 Paragraph 8(3) of the Schedule provides that a land transaction return may be amended to take account of a transaction ceasing to be a higher rates transaction when the former main residence is sold within the three year period prescribed by paragraph 3(7)).

2 The deadline for amending the return is stipulated in paragraph 8(3) as the later of:

· three months after the effective date that the former main residence is sold and

· twelve months after the filing date for the return.

3 For cases where the former main residence is sold in the later part of the three year period, the vendors have just three months in which to file an amended return in order to seek a refund.

4 Given the potential brevity of the period for amending the relevant return, the ATT believe that there will need to be prominent warnings on returns and in HMRC in order to ensure that vendors in the position are fully aware of the right to seek a refund and the time limits in which to do so.

E Interests inherited jointly

1 Paragraph 15 of the Schedule introduces a limited special treatment in respect of a person ("P") who becomes jointly entitled with either one or more other persons to a major interest in a dwelling, where P’s beneficial share in the interest does not exceed 50%. For a period of three years from the date of the inheritance, P is not treated as owning the major interest in the inherited property for the purposes of establishing how many dwellings P owns.

2 Of itself, this is a sensible and welcome addition – it was not in the consultation draft of the legislation that was published in December 2015. It has presumably been included to allow time for the estate of a deceased to be administered and wound up during which time P would not have the power to sell their interest in the inherited property and might therefore be disadvantaged if trying to buy their first home during that time.

3 The ATT believe that consideration might usefully be given to extending the logic of paragraph 15 to circumstances where property has been inherited but is subject to a trust the terms of which mean that the beneficiaries are not in a position to sell their interest in the inherited dwelling.

4 An example of where such a provision might be relevant is where a married couple had owned their home as tenants-in-common and, on first death, the deceased’s share of the house was left to their adult children but subject to the deceased’s surviving spouse or civil partner being entitled to continue to live in the property

5 It is possible that paragraph 11 of the Schedule already caters for situation summarised in E.4 above but it is not entirely clear that the deemed holding of the major interest by the surviving spouse or civil partner (by virtue of paragraph 11(3) wholly displaces any beneficial interest on the part of any other beneficiary (the children in the example). Clarification on the point would be helpful.

6 Our concern is that any inherited property or property held in trust should not penalise a first time buyer when they are not in a position to release the capital from the inherited/trust property.

F About us

The Association of Taxation Technicians is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. One of our key aims is to provide an appropriate qualification for individuals who undertake tax compliance work. Drawing on our members' practical experience and knowledge, we contribute to consultations on the development of the UK tax system and seek to ensure that, for the general public, it is workable and as fair as possible.

Our members are qualified by examination and practical experience. They commit to the highest standards of professional conduct and ensure that their tax knowledge is constantly kept up to date. Members may be found in private practice, commerce and industry, government and academia.

The Association has over 8,000 members and Fellows together with over 5,700 students. Members and Fellows use the practising title of 'Taxation Technician' or ‘Taxation Technician (Fellow)’ and the designatory letters 'ATT' and 'ATT (Fellow)' respectively.

July 2016


Prepared 7th July 2016