Guide to Stamp Duty Land Tax

guide to stamp duty land tax- Butt Miller Chartered Accountants

At Butt Miller Chartered Accountants we have created this guide for you to help you understand how Stamp Duty Land Tax works and how it may effect you.

Read on to find out more…

Who pays the Stamp Duty Land Tax?

Stamp Duty Land Tax (SDLT) is payable by the purchaser in a land transaction occurring in England and Northern Ireland. For land transactions occurring in Scotland, Land and Buildings Transaction Tax (LBTT) applies, and in Wales land transactions are chargeable to Land Transaction Tax (LTT).

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.

SDLT: temporary reduced rates

Reduced rates of SDLT apply for residential properties purchased from 8 July 2020 until 30 September 2021 inclusive.

The following rates and thresholds apply to 30 June 2021:

Residential Property Purchase Price of PropertyBand % Rates
£0 – £500,0000
£500,001 – £925,0005
£925,001 – £1,500,00010
£1,500,001 and over12

The following rates and thresholds apply from 1 July 2021 to 30 September 2021:

Residential Property Purchase Price of PropertyBand % Rates
£0 – £250,0000
£250,001 – £925,0005
£925,001 – £1,500,00010
£1,500,001 and over12

The following rates and thresholds apply from 1 October 2021:

Residential Property Purchase Price of PropertyBand % Rates
£0 – £125,0000
£125,001 – £250,0002
£250,001 – £925,0005
£925,001 – £1,500,00010
£1,500,001 and over12

First-time buyer relief

From 1 July 2021 first-time buyers pay 0% SDLT on residential properties on consideration up to and including £300,000.

The excess beyond this and up to £500,000 will be charged at 5% with ordinary SDLT rates applying beyond £500,000. Each SDLT rate is payable on the portion of the property value which falls within each band.

The rates and thresholds are:

Property ValueBand % Rates
£0 – £300,0000
£300,001 – £500,0002
Over £500,000Standard rates apply

First-time buyers’ relief for qualifying shared ownership

First-time buyer relief applies to purchasers of qualifying shared ownership properties who do not elect to pay SDLT on the market value of the whole property when they purchase their first share. Relief will be applied to the first share purchased, where the market value of the shared ownership property is £500,000 or less.

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 36 month rule set out below helps to remove some transactions from the additional rates (or allow a refund). Care is 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 mixedBand % Rates
£0 – £150,0000
£150,001 – £250,0002
£250,001 and over5

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.

What if I have 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%.

SDLT surcharge on non-UK residents

A 2% surcharge on non-UK residents purchasing residential property in England and Northern Ireland is to take effect from 1 April 2021. Where contracts are exchanged before 11 March 2020 but complete or are substantially performed after 1 April 2021, transitional rules may apply.

What exemptions are there?

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.

How does the tax work on 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 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 Stamp Duty Land Tax calculators can be found at Gov website.

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. The purchaser must also send a cheque for the tax at the same time so this means that they 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 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.

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.

HOW CAN WE HELP YOU?

Our process is simplicity itself, and it all starts with your call.

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