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Stamp Duty Land Tax is payable by the purchaser in a land transaction which includes a simple conveyance of land such as buying a house but also creating a lease or assigning a lease. If you are considering property investment or acquiring a lease on a commercial property we, at Finnies, can help you to make property acquisitions in a tax efficient manner.
SDLT is payable by the purchaser in a land transaction occurring in England and Northern Ireland. For land transactions occurring in Scotland, Land & Buildings Transaction Tax (LBTT) applies and in Wales land transactions are chargeable to Land Transaction Tax (LTT).
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.
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.
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.
Each SDLT rate is payable on the portion of the property value which falls within each band.
The current rates are as follows:
First-time buyers may be eligible for first-time buyer relief on purchases of residential property up to £625,000. The rates apply to the portion of the total value which falls within each band.
Each SDLT rate is payable on the portion of the property value which falls within each band. The rates and thresholds (from 23 September 2022) are:
No relief can be claimed if the property is over £625,000 and the normal SDLT rates will apply to the full amount of consideration.
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 36-month rule set out below helps to remove some transactions from the additional rates (or allow a refund).
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:
There is a relief (Multiple Dwellings Relief (MDR)) available for purchasers of residential property who acquire interests in more than one dwelling at the same time. Where MDR 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% on the total. As announced in the Spring Budget 2024, MDR will be abolished from 1 June 2024.
There is a 2% SDLT surcharge on non-UK residents (and certain UK resident companies that are controlled by non-UK residents) purchasing residential property in England and Northern Ireland.
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.
Yes. There are a number of situations in which the transfer of land will not be caught for SDLT. No SDLT will be payable and no return will be due. These include:
The SDLT payable on the purchase of a lease depends on whether the lease is new or existing (an assigned lease).
Where a new lease is purchased. The SDLT payable will be calculated on the value of the premium (upfront lump payment). If anything more than a nominal rent is payable, SDLT will also be payable on the net present value (NPV) of the rent over the term of the lease. The premium and the NPV are treated as two separate amounts. If the calculated value of either exceeds £250,000 for residential property and £150,000 for non-residential, the excess is charged SDLT at the normal rates.
An SDLT return will be due where the premium is £40,000 or more, even if no SDLT is due, unless the term of the lease is less than seven years.
If an existing lease is purchased, SDLT is calculated in the same way as the purchase of a freehold property. 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.
The government has SDLT calculators which work out the amount of SDLT payable. The calculators can be found at www.gov.uk/stamp-duty-land-tax-calculators.
The purchaser must complete an SDLT1 return and this must be submitted to the relevant HMRC office within 14 days of the transaction's effective date. Solicitors and conveyancers can submit the return online on your behalf. Otherwise, a paper return must be used. Payment must be made at the same time. A late return triggers an automatic penalty of £100, and late payment of the tax will mean a charge to interest.
A certificate will be sent to the purchaser to show that they have paid the tax. This certificate is required to change the details of the property ownership at the Land Registry. The fact that HMRC has given the purchaser a certificate does not mean the SDLT calculations are agreed. HMRC has nine months in which to decide whether or not to enquire into the return and challenge the figures.
If you are planning to enter into an arrangement to purchase land, we can advise you of the precise impact of Stamp Duty Land Tax on the transaction so please contact us at Finnies. We can also help you complete the SDLT1 and submit it to HMRC.
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