Stamp Duty Land Tax
Stamp Duty Land Tax (SDLT) commonly referred to as Stamp Duty is payable by a buyer in many property transactions. This includes the buying of a house or flat and on the creation or assignment of a lease or assigning a lease.
If you are purchasing a property or acquiring a lease on a commercial property, we at Parfitt Cresswell, can assist you with your understanding of the SDLT position.
Who pays the Stamp Duty Land Tax?
SDLT is payable by the purchaser on many land transactions in England, Wales, Scotland and Northern Ireland. Wales, Scotland and Northern Ireland have their own SDLT rules. We can only advise on the SDLT rules as they apply to transactions carried out in England.
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What is a land transaction?
Broadly, this will include the buying of a house, flat or land and taking a lease or an assignment of a lease.
When is the tax payable?
The tax will be payable when a contract has been substantially performed. Where you take possession of the property on completion of the contract (the completion date) that will be the date the SDLT becomes due. If you take possession on a date before the agreed completion date that date 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’s value which falls within each band.
The current rates and thresholds are :
Rates paid on the part of the property price within each tax band
£0 - £125,000
£125,001 - £250,000
£250,001 - £925,000
£925,001 - £1,500,000
£1,500,001 and above
Additional residential properties
From 1 April 2016 higher rates of SDLT were imposed on purchases of additional residential properties (above £40,000).
This mostly relates to buy to let properties or second homes. There are some buyers who will have to pay the higher rates even though the property purchased will not be a buy to let or a second home.
If you already own, or partly own, a property and purchase another property without having disposed of the first property this will be an “additional residential property” and trigger the higher rate of SDLT.
The higher rate of SDLT are three percentage points above the rates shown in the table above. The higher rates apply if, at the end of the day you own two or more residential properties.
However, there can be some relief from the higher rate of SDLT:
- You will have 36 months to claim a refund of the higher rates if you buy a new main residence before disposing of the previous main residence;
- You will also have 36 months between selling a main residence and replacing it with another main residence without having to pay the higher rate of SDLT;
- 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 rate of SDLT.
You must bear in mind, however that if your business is investment in property or land there will be no exemption from the higher rates of SDLT.
What about non-residential and mixed property?
The rates for non-residential and mixed property, broadly speaking what would be termed as “commercial 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
£0 - £150,000
£150,001 - £250,000
£250,001 and over
More than one dwelling
There is a relief available for buyers of residential properties who acquire 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 (i.e. by the aggregate consideration divided by the number of dwellings) subject to a minimum rate of 1.
Are there any exemptions for when the transfer of land will not result in the payment of SDLT?
There are a number of situations in which the transfer of land will not result in the payment of 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 SDLT charged on?
Tax is chargeable on the consideration. This will usually be the purchase price of the property. 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.
SDLT is payable on some leases
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 i.e. 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 (the Net Passing Value) for non-residential, the excess is charged at 1%.
A “2 SDLT rate” is payable in respect of rent paid under a non-residential lease where the Net Passing Value 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 here.
How do I tell HMRC about a liability in SDLT?
The buyer or tenant must complete an SDLT1 return and this must be submitted to a special HMRC office within 14 days of the transaction. You must also discharge 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 once I have paid SDLT?
A certificate will be sent to you to show that you have paid the tax. This is required to enable you 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 buy or lease property, we can advise you of the impact of Stamp Duty Land Tax on the transaction. To take advantage of our complimentary initial consultation with one of our property law experts contact us today on 0800 999 4437 or click on the 'Get in touch' button above.
(If instructed on the transaction we will help you complete the SDLT1 and submit it to HMRC)
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