You need to pay stamp duty & land tax (SDLT) when you buy a property or land in England, Wales and Northern Ireland, with some exemptions. SDLT may be the first tax you would have paid as a landlord!
SDLT is usually payable in following situations:
- Purchase of a freehold and leasehold property (including shared ownership)
- Grant or assignment of a lease
- Transfer of property or land for consideration (we will explain this in detail later)
Stamp duty and land tax (SDLT) Rates
The SDLT rates are different depending upon whether the property is residential or commercial and freehold or leasehold.
Residential Property – SDLT Rates
The SDLT rates as per table below apply to freehold property and the premium paid for a lease in case of leasehold property.
Plus 3% on more than one residential property property and by any property purchased by the company. So, most of the BTL properties will have additional 3% SDLT whether purchased from company or individual.
The rates above are calculated under 'slice' system instead of 'slab' system. This approach is similar as for income tax. For example, SDLT on a house worth £1.8 million is calculated as below
| Only one property | Additional property (+ 3%) |
|---|---|---|
First £125,000 at 0% | £0 | £3,750 |
Next £125,000 at 2% | £2,500 | £6,250 |
Next £675,000 at 5% | £33,750 | £54,000 |
Next £575,000 at 10% | £57,500 | £74,750 |
Next £300,000 at 12% | £36,000 | £45,000 |
Total SDLT payable | £129,750 | £183,750 |
Another point to note is that the SDLT at 15% is charged on residential properties costing more than £500,000 when purchased by companies in certain cases. However, this higher rate is not applicable to regular property rental business, property developers and property traders.
Non-Residential Property – SDLT Rates
The SDLT rates as per table below apply to freehold property and the premium paid for a lease in case of leasehold property.
The rates above are calculated under 'slice' system similar as residential rates. For example, SDLT on a commercial property worth £1.8 million is calculated as below:
| SDLT |
|---|---|
First £150,000 at 0% | £0 |
Next £100,000 at 2% | £2,000 |
Next £1.55 million at 5% | £77,500 |
Total SDLT payable | £79,500 |
You can see the SDLT on commercial property worth the amount is lower by £104,250 compared to residentail buy-to-let property!
Non-residential propery rates is applicable in following cases:
- Commercial properties (e.g. offices, shops)
- Six or more residential properties bought in a single transaction
- Agricultural land and forests
- Any other property or land which is not used as dwelling
Leasehold Property – SDLT Rates on Rent Payable
On the lease premium (purchase price), the same rates are applicable as in the table above for both residential and non-residential properties. On top of that, additional SDLT is payable on Net Present Value (NPV) of rent payable if it is greater than £125,000 for residential property and £150,000 for non-residential property.
On the residential lease, SDLT rate on NPV of rent payable is 1% of the value over £125,00. From a practical point of view, SDLT only becomes payable on a relatively high rent - starting at £4,500 per annum for a 99-year lease and so nothing to worry about for the majority of cases.
When to pay SDLT and file return?
On any property transactions, there are usually two stage process: exchange and completion. For SDLT, the date of transaction is the date of completion not the date of exchange with some exceptions for complicated cases. Please note that this is different from the rules for Capital gains tax for which the date of transaction is the date of exchange.
You must pay SDLT and file SDLT return within 30 days of the date of completion. If you don't file SDLT return or pay SDLT within this time limit, HMRC will charge interest penalties.
There is penalty of £100 for filing up to 3 months late and penalty of £200 for being late more than 3 months. HMRC will also charge interest on late payment of tax.
Chargeable consideration in Special Cases
In standard cases, the SDLT is charged on the price paid to purchase the property or land. However, in some special cases, the chargeable consideration is not clear at the outset. Chargeable consideration can be both monetary or non-monetary. Examples of non-monetary consideraion are as below:
- Goods or services
- Carrying out works on land
- Release from a debt or transfer of debt
Also, in cases where VAT is chargeable on the property, the consideration include VAT amount as well.
When consideration is dependant upon some future events ('contingent consideration'), the tax is payable on the assumption the future event will happen. For example, when additional £1 million is payable on approval of planning permission, the SDLT is payable on £1 million on the assumption that it will happen.
There is a special rule when a company purchases from its connected person. In this case, the chargeable consideration is the market value of the land at the date of transaction. For example, a property is transferred by to Limited company by its owner at incorporation. In this case, the chargeable consideration is market value even if it is transferred at nil value.
SDLT Exemptions
You don't have to file return or pay the tax in following cases:
- Property transferred at nil consideration (with some exceptions)
- Transfer because of divorce
- Freehold property purchased for less than £40,000
- Leasehold property with lease premium less than £40,000 and annual rent is less than £1,000
- Property transferred as per will
SDLT Reliefs
Many landlords overpay stamp duty & land tax because they are not aware of reliefs available. Here are few common types of reliefs available:
- Multiple dwellings relief (MDR) - available on purchase of more than one dwellings in one transactions or linked transactions
- Group Relief - available for transfer of properties between companies within same group
- Relief for complying with planning obligations - available to property developers
- Relief to charities
- Relief on incorporation of LLPs