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Stamp duty land tax (SDLT) – An introduction

Property in England, Wales and Northern Ireland

A brief history

Stamp Duty Land Tax (SDLT) was introduced on 1 December 2003 and replaced Stamp Duty in respect of land transactions.

What is SDLT?

SDLT is a tax that is generally payable on the purchase or transfer of land and property in England, Wales and Northern Ireland. It is also payable in respect of certain lease premiums.

Purchasers of property are only able to register their ownership at the Land Registry if they have a Land Transaction Certificate issued by HMRC. This certificate will only be issued when the purchase has been reported to HMRC on an SDLT return. All property transactions valued at £40,000 or more must be so reported.

SDLT is usually chargeable by reference to the cash value of the transaction. However the definition of ‘consideration’ 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 or to take on the mortgage debt secured on a property.

Rates of SDLT

In the Autumn Statement delivered on 3 December 2014, the Chancellor announced some ground breaking changes to the way SDLT is calculated for residential properties. The new rules came into force on 4 December 2014, but buyer who had exchanged on a property purchase before then will have the choice as to whether pay SDLT under the old or the new rules. It is estimated that 98% of buyers will pay less tax under the new rules.

Prior to this change, SDLT was charged on the “slab” basis: whatever rate applied to the total value of the property was applied to the entire purchase price. So if your purchase was £275,000 you would pay a 3% charge on the total price, £8,250. The new rates are applied on a graduated basis, like Income Tax. In the above example, the SDLT charge for a property purchase of £275,000 would be £3,750, a saving of £4,500.

From on or after 4 December 2014, SDLT is payable at the following rates on residential properties:

Rate Residential Property
Zero £0 - £125,000
2% £125,001 - £250,000
5% £250,001 - £925,000
10% £925,001 - £1,500,000
12% Over £1,500,000

15% rate is applied to residential properties held in a 'corporate envelope' costing over £500,000 and purchased on or after 20 March 2014, or costing over £2,000,000 when purchased prior to this date.

The amount of SDLT is calculated as a flat percentage which means that many property transactions are priced at or below the thresholds noted in the table.

This is best illustrated by way of an example. An individual (not a first time buyer) is planning to buy a house which will cost £250,000. The SDLT which he will have to pay will be £2,500 being 1% of the £250,000 purchase price. If the figure was just £1,000 higher (ie: £251,000), the SDLT would be calculated at 3% on the total amount, resulting in a liability to SDLT of £7,530. A £1,000 difference in the selling price increased the amount of SDLT by over £5,000.

A special 15% rate is applied to residential properties held in a 'corporate envelope' costing over £500,000 and purchased on or after 20 March 2014.

Old rules (valid up to and including 3 December 2014)

Rate Residential Property
Zero £0 - £125,000
1% £125,001 - £250,000
3% £250,001 - £500,000
4% £500,001 - £1,000,000
5% £1,000,001 - £2,000,000
7% Over £2,000,000

A special 15% rate is applied to residential properties held in a 'corporate envelope' costing over £500,000 and purchased on or after 20 March 2014.

The rates of SDLT for the purchase of non-residential property are as follows:

Rate Non-Residential Property
Zero £0 - £150,000
1% £150,001 - £250,000
3% £250,001 - £500,000
4% Over £500,000

Property in Scotland

Scottish Land and Buildings Transaction Tax (SLBTT)

The SLBTT came into force on 1 April 2015 and replaced SDLT in Scotland. The Scottish Government say that the SLBTT will take 50% of transactions, or another 10,000 homes out of tax altogether compared to the old SDLT system.

In general a transaction with an effective date on or after 1 April 2015 will be subject to SLBTT if the land is situated in Scotland. However, in some cases, there will be transitional measures in place. There are two sets of rates for residential and non-residential properties.

Scotland: Land & buildings transaction tax (LBTT)

Rate Residential Property
Zero £0 - £145,000
2% £145,001 - £250,000
5% £250,001 - £325,000
10% £325,001 - £750,000
12% Over £750,000

LBTT on non-residential and mixed use properties

Rate Non-Residential Property
Zero £0 - £150,000
3% £150,001 - £350,000
4.5% Over £350,000

These rates are applied on a graduated basis with the portion of the purchase price within each tier charged at the applicable rate.

Notifying HMRC of liability to SDLT

This may be done by the solicitor acting for the purchaser of the property. Notification is made using an SDLT return (SDLT1). The quickest and easiest way to file SDLT returns is online. The alternative is to complete a paper SDLT return, which may involve the completion of supplementary forms.

SDLT returns must be submitted to HMRC within 30 days of the transaction.

If you do not file your SDLT return by the due date you will become liable to an automatic fixed penalty. This is initially £100 but increases to £200 if the return is more than 3 months late. An additional tax based penalty becomes payable if the return is more than 12 months late.

Payment of SDLT

The tax is due for payment within 30 days of when the purchase contract has been substantially performed. In most cases this means when the purchaser takes possession of the property on completion rather than on exchange of contracts.

HMRC prefer payment to be made electronically to their account at Shipley quoting an 11 digit Unique Transaction Reference (UTR). You will find your UTR on the online submission receipt (SDLT5) if you file your return over the web, or you can use the UTR on your paper SDLT return.

Late payment of the tax will mean a charge to interest.

SDLT on leases

SDLT is payable both by reference to lease premiums and to the rental element of a lease. The premium is treated for SDLT purposes the same as if it was a payment for the purchase of a freehold. However, for non-residential properties the nil rate band does not apply if the relevant rental figure for the lease is more than £1,000 per year.

In cases where SDLT is payable both of the following are calculated separately and then added together to obtain the amount of SDLT payable:

  • the lease premium or purchase price
  • the net present value of the rent payable

SDLT and non-residential properties

As is apparent from the table above, SDLT applies to non-residential properties as well as to houses and flats. So SDLT will also be due in respect of the purchase of:

  • commercial property such as shops or offices
  • agricultural land
  • forests
  • any other land or property which is not used as a dwelling
  • six or more residential properties bought in a single transaction

Other SDLT exemptions and reliefs

There are a number of situations where a property transaction does not need to be reported on an SDLT return. These include transactions where no money or value changes hands, property that is left in a will and the transfer of property in a divorce or when a civil partnership is dissolved.

In addition, you do not need to notify HMRC of property transactions where the value involved is less than £40,000. However if the new owner takes over a mortgage debt above £40,000 this will count as consideration. In such cases an SDLT return will be required and SDLT will be payable unless the property was left in a will.

SDLT returns are also required in the following situations but, if the relevant conditions are satisfied, no SDLT will be payable:

  • house-building company buys an individual’s home
  • chain-breaking’ purchases
  • compulsory purchases as part of property development
  • compulsory purchases as part of property development
  • transfers of property between companies in the same group
  • transfers of property to a recognised charity
  • ‘right to buy’ properties
  • registered social landlords

Other special situations

When two or more property transactions involve the same buyer and seller, special rules apply. Such transactions are treated as being 'linked' for SDLT purposes. The rules may also apply when the ‘linked’ transactions involve people connected to a buyer or seller.

There are also special rules that apply when someone buys a property through a formal ‘shared ownership scheme’. These are generally operated by an approved qualifying body such as a housing association, local authority or other public sector body.

Annual Tax on Enveloped Dwellings (ATED)

An Annual Tax on Enveloped Dwellings (ATED) came into effect from 1 April 2013. The annual tax is payable by certain non-natural persons that own interests in dwellings valued at more than £2 million. This provision affects certain companies, partnerships with company members and managers of collective investment schemes described in the legislation as non-natural persons (NNPs).

From 1 April 2015, charges on affected properties will be as follows:

  • More than £1m but not more than £2m - £7,000
  • More than £2m but not more than £5m - £23,350
  • More than £5m but not more than £10m – £54,450
  • More than £10m but not more than £20m - £109,050
  • More than £10m but not more than £20m - £109,050

There are certain NNPs which may not be required to pay the ATED such as:

  • property development, investment rental and trading businesses;
  • residential properties open to the public for at least 28 days a year on a commercial basis;
  • residential properties held for employee accommodation;
  • residential properties owned by a charity and held for charitable purposes;
  • working farmhouses;
  • diplomatic properties; and,
  • some other publicly-owned residential properties.

For the ATED period 1 April 2015 to 31 March 2016, both the return and payment are due by 30 April 2015. There will be a transitional rule for non-natural persons falling into the new threshold (between £1m and £2m) where returns will be due by 1 October 2015 and payment by 31 October 2015, instead of the normal filing date of 30 April 2015. From 1 April 2016 another new band will be introduced for properties with a value greater than £500,000 but not more than £1 million, with an annual charge of £3,500.

How we can help

We would welcome the opportunity to assist you and to determine if there might be ways to limit your liability to pay SDLT. We could then discuss with you the steps that you could take to reduce your liability. These will normally be quite complex so may only be worth considering if the sums involved are especially high.

In any event we would be happy to advice you as to the precise impact of SDLT on transactions you may be contemplating. We can also help with completing SDLT returns, claiming available reliefs, advising you on payment of SDLT and negotiating with HMRC.