Autumn Statement: government changes rules on SDLT, ATED, non-dom remittances and pensions

Out-Law News | 03 Dec 2014 | 5:43 pm | 3 min. read

Major changes will be made to the UK's stamp duty land tax (SDLT) on residential properties from midnight tonight, the chancellor announced in the government's autumn statement.

SDLT is currently charged at varying rates depending on the purchase price of the property, with a single rate payable on the entire transaction. Under the new regime SDLT will be payable at each rate on the portion of the purchase price that falls within that band. The rates are also being amended with the top rate now being 12% on the portion of the price that exceeds £1,500,000.

The 15% higher rate SDLT charge for high value residential properties purchased by a company or other non-natural person remains unchanged. The government said that the reforms are intended to "improve the fairness" and remove the "distortions" created by the existing system.

Tax expert Ray McCann of Pinsent Masons, the law firm behind Out-law.com, said: "The changes to SDLT are long overdue, many of those who sold SDLT avoidance schemes and those who used them have justified their activities on the fact that the tax was designed in a way that was blatantly unfair and made selling easy".

Given that the top rate will increase from 7% to 12%, McCann said that "there will be concern at the substantial increases in rates at the higher end of SDLT".

The annual tax on enveloped dwellings (ATED) will increase. ATED is payable in relation to high value residential properties held by companies and other non-natural persons. The rate of ATED depends on the value of the property. From 1 April 2015, the rates of ATED will increase by 50% above inflation, resulting in a top rate of £218,200 for properties worth over £20million.

Today's announcements relating to the taxation of residential property follow last week's confirmation that the government will introduce a capital gains tax (CGT) charge on non-residents. From April 2015, a CGT charge will now apply to gains on the disposal of UK residential property by individuals, trusts and some companies resident outside of the UK.

Changes were also announced to the remittance basis charge, which affects UK tax resident non-domiciles. Currently, non-domiciled individuals can benefit from a special tax regime, known as the remittance basis, under which they are only subject to UK tax on their non-UK income and gains/assets to the extent that they are "remitted" to the UK.

Individuals seeking to benefit from the regime currently have to pay an annual charge. The charge payable by individuals who have been UK tax resident for at least 12 out of the last 14 tax years is now set to increase from £50,000 to £60,000. A new charge of £90,000 will be introduced for individuals who have been UK resident for 17 out of the last 20 tax years. There will be no change to the £30,000 charge applicable to individuals who have been UK resident for at least 7 out of that last 9 tax years.  

Ray McCann said that "the increase in ATED and the remittance basis charge are not a surprise and it will be a relief that George Osborne has not gone further. The direction of travel is clear and very soon the economic cost of retaining 'non-dom' status will mean that only the richest non-doms will retain the remittance basis."

The chancellor also announced an increase to the personal allowance to £10,600 from April 2015. However, the government stopped short of confirming a restriction of entitlement to the personal allowance for non-residents, stating that whilst the government "believes there is a strong rationale" for the change, it recognises that it is a "complex change" for affected employers and individuals. Consequently, the government will continue to discuss possible implementation with stakeholders.

Further changes were announced to the taxation of inherited pensions. “When the chancellor first announced changes to the tax payable on the death of pension scheme members, he created an unlevel playing field between annuities and drawdown,” said Simon Laight, a pensions expert at Pinsent Masons, the law firm behind Out-Law.com. “If the member died under age 75, remaining DC funds could be passed on to beneficiaries tax free if he or she had been drawing down from the pensions pot, but not if an annuity had been bought. The press at the time said it was the final nail in the coffin for annuities, following on from the Budget announcement removing all compulsion on DC members to buy an annuity.”

“Fortunately, the chancellor has now recognised the unfairness,” he said. “Annuities are to be treated on a par with drawdown. This is great news for annuity providers, and has levelled the playing field for pension savers to make a reasoned choice between annuities and drawdown.”