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A Complete Guide on Stamp Duty Land Tax

Published by Raju Gajurel
Published Date: August 28, 2022 , Updated Date: July 17, 2024

Stamp Duty Land Tax (SDLT) was introduced by the Finance ACT of 2003, which imposes tax obligation on land transaction involving any estate, interest, right, or power in or over land in England and Northern Ireland. SDLT may be the first tax you would have paid as a landlord!

SDLT is a self-assessed tax on a process now and check later basis with compliance and rights of appeal. HMRC can initiate an enquiry into a land transaction return or an amendment to a return:

  • without giving a reason;
  • by giving a written notice to the purchaser;
  • in the period from the date of receipt of the return or amendment to the return until the end of a defined period. The defined period is 9 months after the filing date if the return was delivered on or before that date. If delivered later, the end of the defined period is 9 months after the date on which the return or amendment was received.

For the purpose of SDLT, a chargeable consideration means anything given for the land transaction that is money or money's worth. Non-monetary chargeable consideration includes: -

  • The release or assumption of debt
  • Works and services
  • The transfer of other property

Non-monetary consideration are valued at their market value.

SDLT is usually payable in the 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 Land Tax (SDLT) Rates

The SDLT rates are different depending upon whether the property is residential or commercial and freehold or leasehold.

SDLT Rates for Residential Property

  • FOR UK Residents

  • FOR Non-UK Residents

Purchase Price

SDLT Rate for a Single Property

Additional Rate

Up to £250,000

0%

3%

£250,001 to £925,000

5%

8%

£925,001 to £1.5 Million

10%

13%

Over £1.5 Million

12%

15%

  • If you're purchasing additional residential property, then this means that you'll own more than one home. Therefore, as shown above, you'll have to pay a 3% surcharge on top of standard SDLT rates.
  • Suppose you're not present in the UK for at least 6 months during the 12 months before you purchase a residential property. In that case, you're not considered a UK resident for SDLT; therefore, you'll have to pay a 2% surcharge as shown above.
  • The rates above are calculated under the 'slice' system instead of the 'slab' system. This approach is similar to income tax.

First-Time Buyers

Suppose you and the person you are buying with are first-time buyers of a residential property. In that case, a discount (relief) can be obtained if both conditions below apply:

  • the property is purchased to occupy it as the main residence;
  • the purchase price of the property is not more than £625,000.

Slab

Tax Rate(UK Residents)

Tax Rate(Non-UK Resident)

0 to £425,000

0%

2%

£425,000 to £625,000

5%

7%

You can also get comprehensive information from our First Time Buyer Relief: Understanding Tax Credits and Deductions article.

New Leasehold Sales and Transfers

Suppose you're purchasing a new residential leasehold property. In that case, you'll have to pay SDLT on both the purchase price of the lease (using the rates above) and the value of the annual rent you pay (known as net present value).

Net present value is calculated on the total rent over the life of the lease.

The calculation is to be done separately and then added together.

Net Present Value of Rent

Residential SDLT Rate

Up to £250,000

0%

Over £250,000

1% of the Value that exceeds £250,000

Rates for Acquisitions by Non-Natural Persons

Non-natural persons include companies, partnerships, and collective investment schemes. The following rates apply if the residential property is acquired by non-natural persons:

Purchase Price

SDLT Rate

Up to £500,000

0%

Over £500,000

15% of the value that exceeds £500,000

However, relief from the 15% SDLT rate is available if the property is

  • utilized in a property rental business;
  • purchased by a property developer or property trader;
  • utilized in a trade that includes making the property accessible to the public;
  • purchased by a financial institution during lending;
  • utilized by employees of the acquirer;
  • a farmhouse;
  • purchased by a qualifying housing co-operative.

Examples :

Example 1 :

Calculation of SDLT on the purchase of a residential property

Purchase Price: £1.6 Million

Here, SDLT is calculated on the purchase of residential property as follows:


First property 

Price

0% on the first £250,000 = 0

3% on the first £250,000 = £7,500

5% on the next £675,000 = £33,750

8% on the next £675,000 = £54,000

10% on the next £575,000 = £57,500

13% on the next £575,000 = £74,750

12% on the final £100,000 = £12,000

15% on the final £100,000 = £15,000

Total SDLT                      £103,250

Total SDLT                      £151,250

Hence, in the above example, you can clearly see that an additional 3% surcharge is levied if you purchase an additional residential property.

Example 2:

 Calculation of SDLT on the net present value of the rents in case of a residential lease.

Net present value = £350,000

0% on the first £250,000

     0

2% on the final £100,000

=  £1,000

Total SDLT

=  £1,000

Therefore, SDLT payable on the net present value of the rents is £1,000. However, you should not forget to calculate SDLT on the purchase price of the lease using the rates applicable.

SDLT Rates for Non-residential Property

What falls under non-residential property?

If your property has any of these elements, it is classified as a Non-Residential Property.

  • 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.

Rates for Freehold and New Leasehold Sales and Transfers

  • Freehold Sales and Transfers

  • new Leasehold Sales and Transfers

Purchase Price

SDLT Rate

Up to £150,000

0%

£150,001 to £250,000

2%

Over £250,000

5%

If you purchase a new non-residential property or mixed leasehold, then you'll have to pay SDLT on both the purchase price of the lease (using the rates above) and the value of the annual rent you pay (known as net present value).

Net present value is calculated on the total rent over the life of the lease. The calculation is to be done separately and then added together.

Examples:

Example 3:

Calculation of SDLT on the purchase of a freehold non-residential property

Purchase price: £1.6 million

Here, SDLT is calculated on the purchase of non-residential property as follows:

0% on the first £150,000

     0

2% on the final £100,000

=  £2,000

5% on the final £1,350,000

Total SDLT

=  £67,500

=  £69,500

Therefore, the total SDLT payable is £69,500.

Example 4:

Calculation of SDLT on the net present value of the rents in case of leasehold non-residential lease.

Here, Ted grants a new 15-year lease to Kio on 19 March 2019 commercial building, for which Kio agrees to pay an annual rent of £500,000, the net present value of which is £4,476,680.

Net Present Value = £350,000

Here, SDLT is calculated on the net present value of the rents in the case of the non-residential lease as follows:

0% on the first £150,000

     0

1% on the final £4,326,680

= £43,627

Total SDLT

    £43,267

Therefore, SDLT payable on the net present value of the rents is £43,627. However, you should not forget to calculate SDLT on the purchase price of the lease using the rates applicable.

SDLT Rates for mixed-use Property

A mixed-use property incorporates both residential and non-residential elements, for example, a shop with a flat above.

SDLT rates applicable for mixed-use property

SDLT rates for mixed-use property apply similarly to non-residential property except where multiple dwelling relief is available and limited to consideration apportioned to dwellings.

Stamp duty on Shares

Stamp duty is required to be paid on shares when such shares are transferred through a written document.

You usually have to pay stamp duty at 0.5% on the purchase of shares.

If you purchase shares electronically

Suppose you purchase shares electronically through the 'CREST' system (a computerized register of shares and shareowners). In that case, you'll pay Stamp Duty Reserve Tax (SDRT) at 0.5%.

The 0.5% Stamp Duty Reserve Tax (SDRT) is substituted by a higher one-time charge of 1.5% when chargeable securities are transferred (on sale or otherwise than on sale) to a depositary receipt issuer (or its nominee) or operator of a clearance service (or its nominee).

If you purchase shares using a stock transfer form

If you purchase shares using a stock transfer form, then you’ll pay stamp duty at 0.5% if the transaction is over £1,000.

Get the latest information about the SDLT Rates 2022/23 to make you ahead of everyone.

Exemptions Available for Stamp Duty on Shares

Yes, the purchase of some shares can be exempt from stamp duty when:

  • shares are transferred as gifts for no consideration;
  • shares are transferred on marriage/civil partnership or on divorce/dissolution of civil partnerships;
  • shares held in a trust are transferred from one trustee to another;
  • shares transferred back to you after being used as collateral for loan;
  • shares transferred to you by someone in their will;
  • shares transferred by the liquidator when a company is wound up;
  • shares transferred by beneficiaries when a trust is wound up;
  • shares admitted to recognized growth markets are transferred.

When to Pay SDLT and File Return?

There are usually two-state processes on any property transactions: exchange and completion. For SDLT, the date of the transaction is the date of completion and not the date of exchange, with some exceptions in complicated cases. Please note this is different from the rules for Capital Gains Tax, for which the date of transaction is the date of exchange.

SDLT must be paid and file SDLT return within 14 days from date of completion. If the SDLT return is not filed or pay SDLT within this time, HMRC will charge interest penalties.

There is a penalty of £100 for filing up to 3 months late and a penalty of £200 for being late more than 3 months. HMRC will also charge interest on late payment of tax. If the SDLT return is late by more than 12 months, HMRC can charge a penalty of up to 100% of the SDLT due.

Chargeable Consideration in Special cases

The SDLT is charged on the price paid to purchase the property or land in standard cases. However, in some special cases, the chargeable consideration must be clarified immediately. Chargeable consideration can be both monetary and non-monetary. Examples of non-monetary consideration 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 includes VAT special amount as well. When consideration is dependent upon some future events ('contingent consideration'), the tax is payable on the assumption the future event will happen. For example, when an 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 the transaction. For example, a property is transferred to a 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 the following cases:

  • Property transferred at nil consideration
  • 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 £1000
  • Property transferred as per will

SDLT Relief

Many landlords overpay stamp duty & land tax because they need to be aware of available reliefs. Here are few common types of reliefs available:

  • Multiple Dwelling Relief (MDR) – available on the purchase of more than one dwelling in one transaction or linked transactions.
  • Group Relief- available for the transfer of properties between companies within the same group
  • Relief for complying with planning obligations-available to property developers
  • Relief to charities
  • Relief on incorporation of LLPs.

How Can UKPA help you?

If you require assistance on the calculation of stamp duty, we at UKPA, have a team of professionals that can help you with the calculation and legal requirements.

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Raju Gajurel
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