Stamp Duty Land Tax

Who pays the tax?

SDLT is payable by the purchaser in a land transaction occuring in England, Wales and Northern Ireland.

What is a land transaction?

A transaction will trigger liability if it involves the acquisition of an interest in land. This will include a simple conveyance of land such as buying a house, creating a lease or assigning a lease.

When is the tax payable?

The tax has to be paid when a contract has been substantially performed. In cases where the purchaser takes possession of the property on completion, that will be the date. However, if the purchaser effectively takes possession before completion - known as 'resting on contract' - that will be regarded as triggering the tax.

How much tax is payable on residential  property?

Each SDLT rate  is payable on the portion of the  property value which falls within each band.

The current  rates and thresholds are :

Residential property

Purchase price of property

Rates (%)   £0 - £125,000 0   £125,001 - £250,000 2   £250,001  - £925,000 5   £925,001  - £1,500,000 10   £1,500,001  and above 12

Additional residential properties

Higher rates of SDLT are charged on  purchases of additional residential properties (above £40,000).

The main target of the  higher rates is purchases of buy to let properties  or  second homes . However, there will be  some purchasers who will have to pay the additional charge even though the  property purchased will not be a buy to let or a second home. The proposed 36  month rules set out below will help to remove some transactions  from  the additional rates (or  allow a refund).

Care will be needed if an  individual already owns, or partly owns, a property and transacts to purchase  another property without having disposed of the first property.

The higher rates  are  three percentage points above the  SDLT  rates shown in the table above. The higher rates  potentially apply if, at the end of the day of the purchase transaction, the individual  owns two or more residential properties.

Some further detail:

• Purchasers will have 36  months to claim a refund of the higher rates if they buy a new main residence  before disposing of their previous main residence
• Purchasers will also have  36 months between selling a main residence and replacing it with another main  residence without having to pay the higher rates
• A small share in a  property which has been inherited within the 36 months prior to a transaction  will not be considered as an additional property when applying the higher rates
• There will be no exemption  from the higher rates for significant investors.

What about non-residential and mixed property?

The rates for  non-residential and mixed property are set out in the table below.

The  SDLT rates are payable on the portion of the property value which falls within  each band.

Non-residential  and mixed  Rate %   £0 - £150,000 0   £150,001 - £250,000 2   £250,001 and over 5

Broadly speaking, 'residential  property' means a building that is suitable for use as a dwelling. Obviously it  includes ordinary houses. Buildings such as hotels are not residential.

More than one dwelling

There is a relief available for purchasers of residential property who acquire interests in more than one dwelling at the same time. Where the relief is claimed the rate of SDLT is determined not by the aggregate consideration but instead by the mean consideration (ie by the aggregate consideration divided by the number of dwellings) subject to a minimum rate of 1%.

Are there any exemptions?

Yes. There are a number of situations in which the transfer of land will not be caught for SDLT. These include:

• a licence to occupy
• a gift of land
• transfers of land in a divorce
• transfer of land to a charity
• transfers of land within a group of companies.

What is the tax charged on?

Tax is chargeable on the consideration. This will usually be the actual cash that passes on the sale. However the definition is very wide and is intended to catch all sorts of situations where value might be given other than in cash: for example, if the purchaser agrees to do certain work on the property.

You mentioned that leases are caught. How does the tax work on them?

If an existing lease is purchased,  SDLT is calculated in the same way as the purchase of a freehold property. If a  lease is created for the payment of a premium ie a lump sum in addition to any  rent, then the amount of the premium is the consideration subject to SDLT and  is also calculated in the same way as the purchase of a freehold property.

However, there is also a potential  charge to SDLT on the rental element. The calculation takes account of various  factors including the rent that will be paid under the lease. If the calculated  value exceeds £125,000 for residential property and £150,000 for  non-residential, the excess is charged at 1%.

A 2% rate applies to rent  paid under a non-residential lease where the NPV of the rent is above £5 million.

The  government has SDLT calculators which work out the  amount of SDLT payable. The calculators can be found at https://www.gov.uk/stamp-duty-land-tax-calculators.

How do I tell HMRC about a liability?

The purchaser must complete an SDLT1 return and this must be submitted to a special HMRC office within 30 days of the transaction. You must also send a cheque for the tax at the same time so this means that you have to calculate the tax due. A late return triggers an automatic penalty of £100, and late payment of the tax will mean a charge to interest.

What will HMRC do then?

A certificate will be sent to you to show that you have paid the tax. You will need this in order to change the details of the property ownership at the Land Registry. The fact that HMRC has given you the certificate does not mean your calculations are agreed. HMRC has nine months in which to decide whether or not to enquire into your return and challenge your figures.

How we can help

If you are planning to enter into an arrangement to purchase land, we can advise you of the precise impact of SDLT on the transaction so please contact us. We can also help you complete the SDLT1 and submit it to HMRC.