Stamp duty has been a form of tax present in the U.K since Elizabethan times, when a tax stamp had to be attached to a document to denote that stamp duty had been paid.
Historically, this included documents such as cheques and marriage licenses and was later extended to cover items such as lottery tickets, newspapers and insurance policies.
However, following the 2003 Finance Act, stamp duty was updated, its scope reduced to land transactions and Stamp Duty Land Tax (SDLT) was introduced. SDLT can be complex to understand, however this guide sets out the basic principles of the tax and is correct as of March 2019.
When is Stamp Duty Land Tax (SDLT) payable?
SDLT is payable when any property in the UK is purchased or transferred, known as the ‘effective date’, or on ‘substantial performance’ of a contract or an agreement for a lease. In the case of a commercial lease, substantial performance is generally the earliest a rent payment can be made, when the tenant takes tenure of the property or when 90% or more of any premium is paid.
In the case of a freehold, the effective date is usually the date the contract is completed. SDLT must be paid within 14 days after the effective date in order to avoid costly interest and penalties.
What is Stamp Duty Land Tax charged on?
The total amount on which SDLT is payable is called ‘chargeable consideration’.
This will not only include the purchase price but also could include other considerations such as the release from a debt or the transfer of an existing mortgage.
It could include the price paid for the property, including consideration of any money given directly or indirectly by the purchaser such as the seller’s cost of legal or estate agent fees. It may alsoinclude any VAT payable in respect of the transaction and fees such as those that are only payable once the transaction goes ahead.
Any fee charged which is in reality given for the property must be included in the amount of chargeable consideration, according to HM Revenue And Customs. Any fee that does not have to be paid to secure the property, such as a purchaser’s own legal costs, will not constitute chargeable consideration.
Where chargeable consideration is uncertain, purchasers must make a reasonable estimate and pay SDLT on that basis.
When is Stamp Duty Tax Applicable?
SDLT is applicable in land transactions where the land is in England. Land transactions in Wales are subject to Land Transaction Tax (LTT) and land transactions in Scotland are subject to Scottish Land and Buildings Transaction Tax (LBTT).
A land transaction occurs when someone acquires a chargeable interest in land. It can include the transfer of a freehold interest and the grant, assignment, variation or surrender of a lease as well as some other less common transactions.
Exempt interests include a licence to use or occupy land and a tenancy at will. For a full interpretation of exempt interests, it is worth checking with HM Revenue and Customs (HMRC).
What are Stamp Duty Tax Rates?
On lease premiums and freehold transfers in respect of commercial property then there is 0% rate up to 150%, 2% rate on the portion from £150,000 to £250,000 and 5% rate on the portion above £250,000.
In the instance of rent, SDLT is charged on the net present value (NPV) of the rent payable over the tenure of the lease. VAT is included in this calculation if it is payable on the rent.
The SDLT chargeable on the NPV amounts for commercial property is 0% for £0-£150,000, 1% for the portion from £150,000 to £5M and 2% from the portion above £5M. If there is a variation or rent review provided for in the lease within the first five years of the term then the initial NPV calculation should take this into account.
What Are Linked Transactions And How Does This Affect SDLT?
This occurs when transactions form a single scheme, arrangement or series of transactions between connected persons or parties. The calculation for SDLT in this instance is based on all linked transactions being amalgamated, which prevents them being split to benefit from or a lower rate of SDLT.
The calculation for linked leases depends on whether they are linked by way of a single scheme or arrangement or as a series of successive linked leases.
SDLT on successive linked leases is calculated as though the series of leases were one lease granted at the time the first lease in the series was granted; for a term equal to the aggregate of terms of all the leases in the series; and in consideration of the rent payable under all of the leases in the series.
Where leases not successive, but are still linked – for example, if leases of two adjacent properties are granted by the same landlord to the same renter – then the NPV of each lease will be combined for the purpose of applying the thresholds.
What About Properties Held In Companies?
Commercial properties held through companies or special purpose vehicles (SPVs) have no unique rules under SDLT.
If the shares in such companies are sold rather than the underlying property then stamp duty will be payable at 0.5% rather than SDLT.
There are unique rules for residential properties that are held through companies, however. In these situations SDLT is charged at 15% where UK residential property costing more than £500,000 is purchased by certain non-natural persons, such as companies. There is a 3% surcharge on residential properties bought by companies for under £500,000.
In addition, from 1 April 2013 the annual tax on enveloped dwellings (ATED) is charged annually on high value UK residential property held by certain non-natural persons. The rate of the ATED depends on the valuation of the property.
What If An Existing Lease Is Held Over?
When a lease is renewed, the SDLT position can be complex. A liability can arise in the holding over period before a new lease is granted when interest could be gathering. There should not be an SDLT charge before the new lease is granted, unless it is granted more than a year after the expiry of the old lease.
If the new lease is granted more than a year later, an SDLT charge could arise by reference to each anniversary of the expiry of the old lease, until the new lease is granted
Are There Any Anti-Avoidance Rules?
Yes, there are various anti-avoidance rules and there is an obligation on promoters of schemes to disclose them to HMRC.
Are There Any Payment Or Filing Obligations?
There is a legal obligation on the purchaser or tenant to submit a land transaction return and pay SDLT, if due, within 14 days of the effective date of a notifiable transaction.
If relief is being claimed then the transaction may still be notifiable, even if there is no SDLT to pay.
A certificate of SDLT paid may be required for the Land Registry in order to register the transaction. This certificate is issued by HMRC on the receipt of payment of SDLT.
A purchaser or tenant who fails to file a land transaction return by the filing date is subject to penalties. Interest is payable on SDLT which remains unpaid within 14 days of the effective date of the transaction.