New Stamp Duty Land Tax rates will place a heavy burden on farms and estates with a large residential value.
Following the recent Budget, it has emerged that farms with valuable houses worth more than £2m will be liable to the new higher Stamp Duty rates. "We had hoped that farms would be exempt from this new higher rate of tax, but a review of the Finance Bill 2012, published on 28 March, has confirmed that any farmhouse worth more than £2m will be subject to a new 7% SDLT levy," says director of rural services Mike Butler.
However, where the purchaser is a company or a joint venture with a corporate partner, they will be liable to pay a punitive 15%. "The new rules were brought in to prevent people circumventing SDLT by purchasing properties as a company, or holding property in offshore companies to avoid Inheritance Tax charges," says Mr Butler.
"However, it does seem to be using a sledgehammer to crack a nut, and means many bona-fide farmers stand to lose out, either through exorbitant tax rates or through reduced demand for property in the higher rate band."
Residential properties worth £1m-£2m will be charged 5% SDLT, while the non-residential value of a farm will continue to be taxed at the existing rates of 1%, 3% and 4% for purchases costing more than £150,000, £250,00 and £500,000, respectively.
"A further concern is the consultation on introducing an annual charge of between 0.3% and 0.7% of the value of residential property worth more than £2m held by a company," says Mr Butler. "Often, farms and estates struggle to pay for the upkeep of large – often historically important - houses as it is. This extra charge of at least £6,000 a year could be the straw that breaks the camel’s back."
Landowners seeking to sell their farm will need to seek professional advice on the residential weighting of the property, while those in the market to buy would be better off not using a company or corporate structure, he warns. "While many farm businesses are seeking to incorporate to capitalise on beneficial Income Tax rules, they should ensure that any land and property remain owned by an individual or partnership.
"A small number of our clients already hold land within a company or corporate structure – while they may be tempted to unravel that to escape the proposed annual charges, doing so could crystallise taxable Capital Gains or even incur SDLT on the transfer. We would recommend that anyone in this position await the outcome of the consultation, and take professional advice before taking action."
