Stamp Duty Land Tax (SDLT)

It is recommended that the whole of this section be read before proceeding to exchange of contracts.

What is Stamp Duty Land Tax?

Stamp Duty Land Tax (SDLT) is the new name for stamp duty. Stamp duty is a tax payable on property purchases. It is charged as follows:-

Purchase Price

£0 - £175,000                           0%

£175,001 - £250,000               1%

£250,001 - £500,000               3%

£501,000 +                                4%

 

It is now necessary for a purchaser of land where te purchase price is more than £40,000 to complete and file a tax return, known as a form SDLT1. This is normally done by the purchaser's conveyancer. The SDLT1 must be completed even if no tax is actually payable.

Obtaining a Blank SDLT1 Form

The tax return required is called an SDLT1. I cannot reproduce the form here since each one is individual, having its own unique reference. A form together with a payslip (which is also unique) can be obtained by calling the Inland Revenue's Orderline on 0845 302 1472.

Completing the SDLT1

The Inland Revenue's guidance on completing the SDLT1 and any additional forms needed can be found on their website. The notes are already very comprehensive and I therefore have little to add. There may be points on which clarification may be required but in this instance, rather than me write pages of text in an attempt to second guess any questions that may arise, I would ask that any reader who requires clarification on any point e-mail me at help@freeconveyancingadvice.co.uk and I will be more than happy to assist.

 

I would just say that, because if doing your own conveyancing you are unlikely to have spare forms if a mistake is made, you should complete the return as far as possible prior to exchange of contracts. This will help to avoid delays in submitting the return following completion and so help to avoid the penalties described below.

Time Limits and Penalties for Returning the SDLT1

The return must be received, correctly completed, by the Inland Revenue no later than 30 days following completion of the transaction. Failure to do so incurs a penalty of £100, whether or not any tax is actually payable. If the return is more than 3 months late then the penalty is £200 and also interest on the duty payable (if any) will begin to accrue and be payable.

The SDLT5 Revenue Certificate

Following the submission of a correctly completed return together with any duty payable the Inland Revenue will issue a Revenue Certificate known as the SDLT5. It is necessary to submit this certificate to H M Land Registry along with the application for registration of the purchase. Without this certificate, or a completed and signed SDLT60, the transaction cannot be registered.

Form SDLT60

Form SDLT60 was introduced in 2002 to be used in cases where it was not necessary to submit a return to HM Revenue & Customs in form SDLT1 (for example transfers resulting for a court order or transfers for no value). It was a self-certificate of exemption and was sent to the land registry in place of an SDLT5. 

Following a recent change in the rules designed to simplify the process however no form now needs to be submitted in situations where the SDLT60 would previously have been used, therefore it is effectively now obselete.

Transfers of Equity

A transfer of equity is when someone's name is added to, or removed from, the deeds, but one or more of the original owners remains on the deeds following completion. This will typically happen when a couple separates and one buys the other out, or when a couple get together and one moves in with the other.

Unless an SDLT60 can be used (see above) then an SDLT1 must be submitted and duty may be payable. The consideration (purchase price) for tax purposes is calculated as the share of any mortgage secured on the property that the new (or remaining) owner/s is/are taking on plus any money paid to an outgoing owner or by an incoming owner for his share, so for example, if A and B own the property with a mortgage of £100,000 it is transferred into A's sole name then A is taking on B's share of the mortgage - £50,000 - therefore the consideration is £50,000. If A also pays B a premium for the share, say £25,000, then this is added to the £50,000 making a total consideration of £75,000. As this is below £175,000 no tax will be payable but an SDLT1 must still be used. Another example is where someone is being added to the deeds. Let's say that A owns the property and wants t transfer it into the joint names of himself and B. There is a mortgage of £300,000 and B is sharing the liability for the mortgage, so the consideration is half the mortgage, i.e. £150,000, therefore tax is payable.

 

Please note that where a name is being added to the deeds and a new mortgage is being taken out as part of the transaction then the consideration is half the new mortgage amount.

Common Methods Used to Avoid Paying Stamp Duty

When the purchase price is around one of the stamp duty thresholds purchaser will often try to find ways to reduce the price so as to avoid stamp duty (or so that it is payable at a lesser rate). There will be circumstances where this is perfectly legitimate, for example where as the result of a survey it is discovered that some works are required which were not taken into account when the valuation was reached. The buyer may in this case ask the seller for a reduction in the price to cover the cost of the works. Alternatively the sale may include various items of furniture or appliances and a separate price may be agreed for these and deducted from the purchase price.

 

Great care should be taken however. The Inland Revenue will investigate some transactions, and will pay particular attention to those where the purchase price is just below a threshold. If investigated the purchaser will be asked to provide estimates confirming that any works which lead to a reduction in the price were actually required (and the cost) and independent valuations of any items sold as chattels. In the case of chattels it should be noted that for tax purposes it is the item's 2^nd hand value that is taken into consideration, not its value as new. Where the purchase price has been fraudulently reduced the purchaser is liable for prosecution, as potentially is anyone else involved in the transaction such as the seller and both sets of conveyancers.

Regards

Free Conveyancing Advice

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