Capital
Taxes
An
Introduction to Stamp Duty Land Tax
Stamp
Duty Land Tax (SDLT) was introduced on 1 December 2003 and
replaced Stamp Duty in respect of land transactions. Stamp
Duty was an old tax which required the existence of a document,
such as a conveyance. SDLT is a very different type of tax
and the new regime is intended to be robust. This factsheet
sets out some of the basic things you need to know about the
tax.
Who
Pays the Tax?
SDLT
is payable by the purchaser in a land transaction.
What
is a Land Transaction?
A
transaction will trigger liability if it involves the acquisition
of an interest in land in the United Kingdom. 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?
This
depends on whether the land is 'residential property'
or not. The rates currently are as set out in the table below.
You should remember that the whole of the price is taxed at
the appropriate rate:
| Residential
property |
Rate %
|
| £0
- £60,000 |
0
|
| £60,001
- £250,000 |
1
|
| £250,001
- £500,000 |
3
|
| £500,001
and over |
4
|
| Non-residential
and mixed |
|
| £0
- £150,000 |
0
|
| £150,001
- £250,000 |
1
|
| £250,001
- £500,000 |
3
|
| £500,001
and over |
4
|
Example
You are planning to buy a house which will cost £350,000.
The SDLT which you will have to pay will be at 3%. The tax
will be £10,500.
If the house costs £550,000, the SDLT will be £22,000
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.
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
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 consideration subject to SDLT. Where there is no premium
there is still a potential charge to SDLT which has to be
calculated. The calculation has to take account of all the
rent that will be paid under the lease subject to a discount.
If the calculated value exceeds £60,000 for residential
property and £150,000 for non-residential, the excess
is charged at 1%.
I
Have Heard Something About Disadvantaged Areas. How Does That
Work?
A
number of areas in the country are designated as 'disadvantaged'.
The definition is based on post code areas. If a residential
property is located in one of these areas, SDLT only applies
where the consideration exceeds £150,000. All non-residential
property in these areas is exempt from SDLT.
How
Do I Tell the Revenue About A Liability?
The
purchaser must complete an SDLT 1 return and this must be
submitted to a special Revenue 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 the Revenue 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
the Revenue has given you the certificate does not mean your
calculations are agreed. The Revenue 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. We can also help you complete the SDLT1 and submit
it to the Revenue.
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of page
For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
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