The new rules will be backdated to 1 April 2016 and the amendment will be made at the first possible opportunity. This document explains the effect of the amendment that will be introduced and what purchasers should do if they are making purchases now.

Ordinarily in an alternative finance funded purchase, there will be a first transaction which is the purchase of the property by a financial institution from the vendor. There will then be a second transaction which is either a further sale to or lease by the financial institution to the ultimate purchaser. In the case of a lease there may be a subsequent sale back to the ultimate purchaser. Under a purchase funded by a mortgage, there would be one transaction only.

The SDLT relief for alternative finance transactions applies to the second (and subsequent) transaction only, leaving SDLT chargeable on the purchase by the financial institution.

Under the rules for the new higher rates of SDLT announced on 16 March 2016, the financial institution (as a corporate body) would be liable to the higher rates of SDLT if the property purchased was purchased for more than £40,000 and it was not a reversionary interest in respect of a 21-year or longer lease.

This would be the case regardless of the situation of the ultimate purchaser of the property (the purchaser in respect of the second transaction).

Where a purchaser under the second transaction is an individual, this will mean that a purchase of a single dwelling will only be liable to the higher rates if the following apply:

• the individual owns another property at the end of the day of the effective date of the transaction; and
• the purchase is not a replacement of the individual’s previous only or main residence.

In all other respects the financial institution will be treated as the purchaser, including retaining responsibility for filing and payment of the land transaction return and making any amendments to the land transaction return.

If the person ultimately buying the property sells a previous main residence and the transaction ceases to be a higher rates transaction (paragraph 3(7) Schedule 4ZA Finance Act 2003) then only the financial institution will be able to make an amendment to claim a refund of the overpaid tax.

HMRC states that it was never ‘the government’s intention that the higher rates should affect those purchasing using alternative finance transactions any more than other purchasers and it intends to correct the situation at the first opportunity’.

As the measure is retrospective, HMRC has confirmed that affected purchasers should file their land transaction returns on the basis of the changes indicated above. The tax authority says that ‘it will not take action to amend or correct returns that it receives on that basis whilst the change to the law is in progress, avoiding the need to make repayments of overpaid tax following Royal Assent to an amendment’.

The 3% higher rate SDLT applies from 1 April 2016 to purchases of additional residential properties, such as second homes and buy-to-let properties and the measure was announced  at Autumn Statement on 25 November.

The HMRC Guidance on Stamp Duty Land Tax: higher rates for purchases of additional residential properties purchased under alternative finance transaction amendment is available here