The document summarizes changes to the taxation of residential real estate in the UK. Specifically, it outlines the change from the previous "slab" system of stamp duty land tax (SDLT) rates to a new "slice" system. The "slab" system charged higher tax rates on the full purchase price once it surpassed thresholds, while the new "slice" system applies different rates to portions of the purchase price within set thresholds. The changes aim to reduce unfairness and manipulation under the old system. The document also discusses how the new rules interact with anti-avoidance provisions and provides advice on property valuations and potential tax savings.

1. CHANGES TO THE TAXATION OF
RESIDENTIAL REAL ESTATE
Stamp Duty Land Tax

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An update on the change from the "slab" to the "slice" system
of taxation
Background
In December 2014, the chancellor announced one of the most significant changes to the application of stamp duty land tax
(SDLT) in recent years. The change, applicable only to residential properties at this stage, is the change of rates and method
of calculation for SDLT, from a "slab" to a "slice" system.
The "slab" system
Much maligned since the inception of SDLT in 2003, the "slab" system has often been viewed by commentators as an unfair
method of taxation. Under the system, once the amount of chargeable consideration for a land transfer passes the various
applicable rate thresholds, the whole of the consideration is charged at the applicable rate (see figure 1a for the relevant
rates). So, for example, chargeable consideration of £250,000 would cause the whole of that figure to be charged at the rate
of 1%, being £2,500. The perceived unfairness resulting from this can be illustrated by comparing the above with a second
land transaction with chargeable consideration of £250,001. Although just £1 more than the example above, the applicable
rate under the slab system would be 3%, again on the whole consideration. SDLT payable would therefore be £7,500 (an
increase of £5,000, or 200%).
One consequence of this system was that some buyers and sellers would manipulate property values to some extent, in order
to ensure that the consideration fell slightly below rate thresholds, rather than slightly above. The obvious side effect to this is
that property values were unnaturally distorted in the UK residential housing market, which the government was keen to
rectify.
The "slice" system
The changes, introduced with effect from 4 December 2014, amend the applicable rates of SDLT (see figure 1b), but also the
calculation for which those rates apply. The "slice" system means that the relevant rates apply to the designated proportion of
the chargeable consideration, rather than the highest rate applying to the whole of the consideration. For example, assuming
a purchase of residential property for chargeable consideration of £450,000, the applicable rates will be; (i) 0% for the first
£125,000, (ii) 2% for the slice between £125,001 and £250,000, and (iii) 5% for the slice between £250,000 and £450,000.
The tax liability is £12,500, being a blended rate of 2.78%.
Interaction with ATED anti-avoidance provisions
Note that the new rules for residential SDLT are still subject to, and overridden by, the anti-avoidance provisions targeted at
"high value residential properties" (HVRP), in the same way as the old system was. Introduced in 2012 as one of three 'ATED'
anti-avoidance provisions to discourage "corporate wrapping", the HVRP rules apply where residential properties are acquired
by "non-natural persons" such as companies.
If the HVRP rules apply, and there is no relief available, the applicable rate of SDLT will be a flat 15% on the entire chargeable
consideration/price. The availability of reliefs will be a very relevant issue for property developers and property letting
businesses, which will need to rely on, and claim, these reliefs, in order to avoid substantial additional SDLT costs.
Valuing residential land for SDLT
Often, the acquisition of residential premises (particularly multiple units, or large scale developments) will not require a
valuation of each individual unit. Given the way that SDLT is applied, it will often only be necessary to know whether the
properties being acquired are wholly residential, or whether there is an element of commercial use (a common example being
the acquisition of a block of flats with a shop on the ground floor). Where there is a commercial element, the whole acquisition
is normally classified as "mixed" rather than "residential" when determining the appropriate SDLT rate. However, there are an
increasing number of circumstances where more tailored valuation is of prime importance, such as:
(a) claiming multiple dwellings relief (further detailed below) to reduce the SDLT liability, whereby it will be necessary to
determine the average price per residential unit, which requires stripping any value attributable to commercial
elements out for the calculation purposes; and
(b) in relation to HVRP, whereby each residential unit will have to be valued on an individual basis in order to determine
whether the punitive 15% rate is notionally applicable

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As such, property developers or letting businesses acquiring multiple residential properties, or a mix of commercial and
residential, may need to consider in more detail not only the headline price being paid, but a more detailed breakdown of
pricing per unit or use. Doing so may provide a positive result (through a lower rate of SDLT when claiming multiple dwellings
relief), or help avoid a negative one (the HVRP charge).
How might this affect me?
The net result is that properties bought for £937,500 or less will benefit from a lower SDLT liability, as will properties bought
for between £1,000,001 and £1,125,000. Please refer to figure 2 for an illustration of the two systems.
The effective rate of SDLT may be reduced further if the purchaser is acquiring more than one residential property at the same
time, as "multiple dwellings relief" may be available, so charging SDLT at lower rates, on the basis of a 'per unit' price. This
may produce a significant saving (especially, under the reduced 'slice' calculation for less expensive units) for property
developers, or companies acquiring several properties for the purposes of property rental. If six or more residential properties
are to be acquired, then lower commercial rates of SDLT may be applicable.
Figure 1a Figure 1b
Table of SDLT rates under the old "slab" system Table of SDLT rates under the new "slice" system
Figure 2 – An illustration of the difference in tax chargeable between the "slab" and "slice" systems
PURCHASE PRICE SDLT RATE PURCHASE PRICE SDLT
RATE
MAXIMUM
SDLT PER
BRACKET
(AND
CUMULATIVE)
Up to £125,000 0% Up to £125,000 0% £0
(£0)
Over £125,000 to £250,000 1% Over £125,000 to £250,000 2% £2,500
(£2,500)
Over £250,000 to £500,000 3% Over £250,000 to £925,000 5% £33,750
(£36,250)
Over £500,000 to £1,000,000 4% Over £925,000 to £1,500,000 10% £57,500
(£93,750)
Over £1,000,000 to £2,000,000 5% Over £1,500,000 12% N/A
Over £2,000,000 7%

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For further information on any of the above, or for a discussion of how these changes might affect you, please
contact one of the members of the Addleshaw Goddard Commercial Tax Team below.
Peter Sayer
Partner
020 7880 5792
Christopher Connors
Associate
020 7160 3622
Elspeth Van Den Brande
Associate
020 7160 3158

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