Category: Stamp Duty Land Tax

A new consultation has been launched by HM Treasury together with HMRC seeking views on the design of a new 1% Stamp Duty Land Tax (SDLT) surcharge on non-UK residents purchasing residential property in England and Northern Ireland. This move was first mooted in the Budget 2018. The consultation closes for comments on 6 May 2019.

The consultation document makes it clear that the new SDLT surcharge would apply to freehold and leasehold purchases of residential property and will be at a rate of 1% on top of existing SDLT rates, including the rates applicable to the rental element of leasehold property. The government has said that there is evidence that purchases of property by non-UK residents is pushing up house prices for UK residents. The measure is intended to help control house price inflation. It is hoped that this move will assist more UK residents with an opportunity to buy their first home.

Mel Stride, Financial Secretary to the Treasury and Paymaster General said:

‘The UK is and will remain an open and dynamic economy, but some evidence shows that non-UK resident buyers of UK property could be inflating house prices.A 1% surcharge could help more people own their own homes in the future, and its proceeds will go towards tackling rough sleeping, boosting our plan to halve the numbers of rough sleepers by 2022.’

The government will also introduce reliefs from the new charge for crown employees working abroad and there will be a mechanism for non-residents who have paid the surcharge and move to the UK to claim a refund of the extra SDLT.

Stamp Duty Land Tax (SDLT) is a tax that is generally payable on the purchase or transfer of land and property in England and Northern Ireland. It is also payable in respect of certain lease premiums. Higher rates of SDLT were introduced on 1 April 2016 and apply to purchases of additional residential property such as buy to let and second homes.

The filing and payment deadline for SDLT is currently 30 days after the ‘effective date’ of the transaction. HMRC’s guidance explains who must send a SDLT return, the penalties for late filing and how to amend a return. 

For some time, HMRC has been championing a reduction in the time limit that purchasers have to file a SDLT return and pay the tax due from 30 days to 14 days. The draft legislation to put this change in place has recently been published and barring any unforeseen circumstances, the new time limit will apply to transactions with an effective date on or after 1 March 2019.

According to HMRC’s figures 85% of SDLT returns are already filed within 14 days of the relevant transaction. The SDLT return form will also be simplified by reducing the number of questions.

The Scottish Land and Buildings Transaction Tax (SLBTT) came into force on 1 April 2015 and replaced SDLT in Scotland, whilst the Welsh Land Transaction Tax (WLTT) replaced SDLT in Wales from 1 April 2018.

Stamp Duty Land Tax (SDLT) is payable whether you buy a freehold property, a new or existing leasehold property or a shared ownership property. SDLT has been replaced in Scotland by the Land and Buildings Transaction Tax and in Wales by the Land Transaction Tax.

The amount of SDLT you pay when you buy a leasehold property, depends on whether it’s an existing lease (an assigned lease) or a new one. There are also different amounts of SDLT payable depending on whether you are buying residential or non-residential property.

SDLT on an existing lease, described as an assigned lease, is usually based on the lump sum paid for the assignment of the lease. In most cases, the amount of SDLT due is worked out in the same way as if the purchaser had bought a freehold residential or commercial property.

SDLT on new leases is payable both by reference to lease premiums and to the rental element of a lease. The premium is broadly treated for SDLT purposes as if it was a payment for the purchase of a freehold. In cases where SDLT is payable, both the lease premium or purchase price and the net present value of the rent payable are calculated separately and then added together to obtain the amount of SDLT payable. 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.

The biggest prize from the recent Budget went to first-time home buyers after the Chancellor announced changes to the Stamp Duty Land Tax (SDLT) rules. With immediate effect from Budget day, SDLT has been abolished for first-time buyers making a purchase of up to £300,000. Unlike the temporary Stamp Duty holiday that applied from 2010-12 this change has been made permanent.

The Chancellor also extended the relief to the first £300,000 of the purchase price on properties valued at up to £500,000 resulting in SDLT savings of up to £5,000 compared to other house buyers. These changes have the effect of increasing the nil-rate threshold from £125,000 to £300,000 for first-time buyers of properties costing up to £500,000. There is no relief available for first-time buyers spending more than £500,000 on a property.

There are a number of requirements that must be met in order to qualify for the relief. The relief is only available for those purchasing a house for the first time. The purchaser can never have previously owned any share of a property in the UK or anywhere else in the world. The qualifying criteria are extended to both partners when buying a house jointly.

This measure should help boost property sales in a subdued market as the buy-to-let market has shrunk and concerns about Brexit continue. It has been estimated that this relief will help a million first-time buyers over the next five years. However, first-time buyers still face many hurdles to get on the property ladder and can still struggle to raise a deposit and meet tougher lending criteria from the banks.

Planning note

It remains to be seen if similar measures will be introduced for the Land and Buildings Transaction Tax (LBTT) in Scotland or when SDLT is replaced by the Land Transaction Tax (LTT) in Wales from April 2018.

As the Chancellor, Philip Hammond alluded to in his Budget speech there had been much speculation in the press that he would do something to alleviate the Stamp Duty Land Tax (SDLT) burden for first time buyers.

However, he went a step further by introducing a temporary freeze in SDLT. SDLT for all first-time buyers making a purchase of up to £300,000 will pay no stamp duty under the new proposals. He also added a little extra cheer by extending the relief to the first £300,000 of the purchase price on properties valued at up to £500,000. This is an effective reduction of £5,000 in SDLT for a first-time buyer of a house valued at between £300,000 and £500,000.

This measure is intended to help young people buy their first home and to help revive the home-owning dream in Britain after years of decline. The relief was introduced with immediate effect from the 22 November 2017 Budget date. There is no SDLT relief available for first-time buyers spending more than £500,000 on a property.

The measure applies to first-time buyers in England, Wales and Northern Ireland. It remains to be seen if Scotland will introduce similar measures and if the Welsh Assembly will mirror these changes when the new land transaction tax (LTT) which will replace the SDLT is launched on 1 April 2018.

The Chancellor also pledged another £10 billion for the Help to Buy equity loan scheme to help those saving for a deposit to buy a house.

There have been many changes to the way stamp duty land tax (SDLT) and equivalent regional taxes are charged in recent years. This has included changes to the way in which SDLT is calculated for residential property purchases from 4 December 2014. They include a move away from SDLT being charged on a slab basis – where a single rate applied to the total value of the property acquired – to a graduated charge.

From 1 April 2016, new higher rates of SDLT were introduced for purchases of additional residential property such as buy to let and second homes. The higher rate is 3% more than the regular SDLT rates and applies to the purchase of additional residential properties valued at over £40,000.

The way in which the total amount on which SDLT is paid is calculated has not changed. This amount is known as the ‘chargeable consideration’. In a straightforward deal, for example a house purchase, the chargeable consideration is the price you pay for the property. Some items like carpets and curtains are not included when calculating the chargeable consideration other fixtures and fittings such as kitchen fittings are included.

Planning note

Any non-monetary payments, such as exchanging property for goods, works or services, release from a debt and / or transfer of (taking on) a debt, also count towards the chargeable consideration and therefore the amount of SDLT payable.

The chargeable consideration also includes any VAT you pay on the transaction.

Buyers in Scotland should note that the rules for Land and Buildings Transaction Tax, which replaced SDLT, can differ.