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 in the Inverness area we, at MacKenzie Kerr, can help you to make property acquisitions in a tax efficient manner.
Who pays the tax?
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). Please see the separate factsheets for details of LBTT and 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.
The current rates are as follows:
Purchase price of property
|£0 - £250,000
|£250,001 - £925,000
|£925,001 - £1,500,000
|£1,500,001 and above
First-time buyer relief
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:
||Band % Rates
|£0 - £425,000
|£425,001 - £625,000
||Standard 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 £625,000 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 mixed
|£0 - £150,000
|£150,001 - £250,000
|£250,001 and over
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.
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
There is a 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland.
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.
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 calculators can be found here.
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 14 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, in the Inverness area we can advise you of the precise impact of Stamp Duty Land Tax on the transaction so please contact us at MacKenzie Kerr. We can also help you complete the SDLT1 and submit it to HMRC.