7. Stamp Duty Land Tax Flashcards
What is SDLT
Tax on property transactions.
What tax is payable by the purchaser of land in England and Norhtern Ireland?
- WHO submits a form to WHO?
- Stamp Duty Land Tax (SDLT)
- Buyer’s solicitor prepares and submits form to His Majesty’s Revenue & Customs (HMRC)
What tax is payable by the purchaser of land in Wales?
- WHO submits a form to WHO?
- WHEN was SDLT used before?
- Land Transaction Tax (LTT)
- Buyer’s solicitor prepares and submits form to Welsh Revenue Authority (WRA)
BEFORE 1st April 2018 = SDLT used
SDLT - WHAT can be taxed?
- Land transactions - eg. freehold purchases
- Creation, surrender, release / variation of a chargeable interest in land (freehold estate, leasehold estate)
- Leases, covenants and easements which affect the value of land
Post-completion steps:
What happes AFTER seller’s solicitor sends the TR1 form to the buyer’s solicitor?
Buyer’s solicitor MUST arrange for any SDLT/LTT to be paid + submit relevant form (within time limit)
WHEN must a SDLT return be sent to HMRC EVEN IF there is NO tax to be paid?
- HOW make return?
- HOW is return confirmed?
- Submit Form SDLT1 + bank trasfer any SDLT due to HMRC
-
Within 14 days of the effective date of the transaction… AKA:
a. Freehold purchase = Completion AKA date consideration is paid
b. Leasehold = day of completion of the grant of the lease / first tranche of rent is paid - On submittig return, buyer’s solicitor recieves proof SDLT has been paid = SDLT5 certificate
a. SO land can be registered w Land Registry
Consequence IF SDLT NOT filed / paid on time?
-
Transfer of property to buyer will NOT be registered by the Land Registry
a. UNLESS SDLT5/WRA certificate (by HMRC/WRA) accompanies application to Land Registry (proof that tax has been paid) - Attracts penalties and interest
WHEN must a LTT return be sent to WRA EVEN IF there is NO tax to be paid?
- HOW make return?
- HOW is return confirmed?
- Send a Land Transation Return to WRA + bank trasfer any LTT due
- Within 30 days of effective date of the transaction (completion of sale / grant)
- On submittig return, buyer’s solicitor recieves proof LLT has been paid = WRA certificate
a. SO land can be registered w Land Registry
What is the amount of SDLT due paid on?
- OTHER tax cosideration?
The VAT-inclusive amount of chargeable consideration exchanged for the property
- determine IF VAT is chargeable - has seller / LL opted to tax property PRE-completion//grant of lease?
Chargeable consideration = payment in:
- cash
- goods
- work or services
- Release from / transfer of debt (eg. value of any outstanding mortgage)
What 4/5 types of property transfer are exempt from SDLT?
- exceptions! (mortgages)
n.b. = DONT need to file a return!
Property = exempt IF
1. Transferred as a gift w NO chargable consideration changing hands]
a. BUT IF there is outstanding mortgage of a value > SDLT threshold, MUST pay SDLT on this - mortgage x exempt
2. Transferred to a spouse
a. BUT IF there is outstanding mortgage of a value > SDLT threshold, MUST pay SDLT on this - mortgage x exempt
3. Split with a former spouse upon divorce / CP dissolution / annul / legally separate
a. DONT need to tell HMRC about transfer EVEN IF value exceeds threshold
4. Property left in a will
a. Outstanding debt (eg. mortgage) = EXEMPT
5. Under variation of a will within 2 years of the decedent’s death, to change the beneficiary
What do the SDLT thresholds and rates depend on?
- Whether the property is residential, non-residential, or mixed
- Value of transaction
How is SDLT considered a tiered tax?
Because the applicable rate applies to the amount of consideration within the threshold, before applying higher rates to excess amounts
SDLT rates for residential freehold buyers who are NOT first-time buyers
Apply to slices of purchase price (tiered), SDLT:
1. Up to £250,000 = 0% SDLT (none)
2. From £250,001 to £925,000 = 5% SDLT
3. From £925,001 to £1.5 million = 10% SDLT
4. > £1.5 million = 12% SDLT
What is the SDLT payable on the purchase of a £275,000 home by a second-time buyer
non-re= £1,250
- 0% on £250,000 + 5% on £25,000
SDLT rates for residential freehold buyers - NOT 1st-time buyers
MAY pay SDTL when marry / CP / move in, but NO £ changes hands.
Example:
The owner of a property valued at £700,000, with an outstanding mortgage of £600,000, transfers half the property to their partner when they marry in October 2022.
- Their partner takes on 50% of the mortgage (£300,000).
How much, if ANY, SDLT owed?
HMRC charges SDLT on amount of ‘chargeable consideration’ given.
SO
By taking liability for the mortgage = partner has given ‘chargeable consideration’ of £300,000 for their share of the property
= £2,500 SDLT (on the £300,000 oustanding mortgage)
- 0% of £250,000
- PLUS 5% of £50,000
SDLT rates for residential freehold buyers - NOT 1st-time buyers
Residential partner example:
A house has a value of £180,000. The owner of the property has equity of £90,000 and an outstanding mortgage of £90,000.
The owner transfers a half share of the property to their partner, who:
1. pays cash for half the equity — £45,000
2. takes responsibility for 50% of outstanding mortgage — £45,000
Q: What is the chargeable consideration made up of? Value?
Q: How much SDLT is there to pay?
= NO TAX TO PAY*
Chargeable consideration = £90,000 - made up of:
1. cash payment for half the equity - £45,000
2. 50% share of the outstanding mortgage - £45,000
£90,000 = below residential SDLT threshold
- [1. Up to £250,000 = 0% SDLT (none)]
Transfer / dividing up of jointly-owned property / land: unmarried couples and other joint owners:
MAY have to pay tax IF unmarried joint owners transfer an interest in land from one joint owner to another.
1. Pay SDLT IF 2 or more people jointly own property (JT/TIC) and divide it physically and equally and own each part separately?
2. Pay IF one takes a bigger share / ALL of other’s share and pays cash or some other chargeable consideration in exchange?
THINK ABOUT: value of land and consideration paid
1. EQUAL share of jointly owned property with equal value = NO SDLT to pay
2. ONE PERSON GETS LARGER SHARE, which they compensation for = they MUST tell HMRC by filling a Stamp Duty Land Tax return (SDLT1 form) AND PAY SDLT IF amount they pay is >threshold
n.b. NO SDLT to pay + DONT need to tell HMRC about transaction IF you take a bigger share as a gift
- [AKA IF you DONT pay anything in return / DONT take on any liability for a mortgage = NO ‘chargeable consideration’ given]
- NO SDLT for gifts EVEN IF value of bigger part of share is >SDLT threshold
Joint ownership:
Q: WHY is SDLT payable?
Two people own a farm jointly in equal shares. It’s valued at £2 million. They split the ownership of the farm geographically and each takes 50% of the land.
BUT in this example the land taken by person 1 includes the farmhouse and farm buildings. This owner’s land is worth £500,000 more than the land that the other owner, person 2, takes. Shares are:
1. person 1 — £1,250,000
2. person 2 — £750,000
Person 1 compensates person 2 , paying them £250,000.
IF value of each half of the land is the same = would be NO SDLT due
- BUT HERE:…
SDLT IS payable by person 2 on the £250,000 paid in compensation
- more than threshold.
Joint ownership: Transferring an outstanding mortgage
Joint owners (incl. unmarried couples splitting up) agreed that one will take over ownership of a property they bought together, including any outstanding mortgage.
Qs:
1. WHO pays SDLT on the total chargeable consideration IF it exceeds the SDLT threshold??
2. What could chargeable consideration be?
Example:
Two people own a house equally together, valued at £550,000.
They have equity in the property of £350,000 and an outstanding mortgage of £200,000.
In October 2022, they transfer ownership so that one of them will have sole ownership of the property. The new sole owner:
- pays cash for half of the equity — £175,000
- becomes responsible for the other person’s half of the outstanding mortgage — £100,000
Qs:
1. What is the chargeable consideration for SDLT (made up of WHAT?)
2. WHO pays how much SDLT?
Person taking ownership pays SDLT on total chargeable consideration of either OR both (IF exceed threshold):
1. any cash payment made by either one for their share
2. proportion of the outstanding mortgage that belongs to the property share being transferred
EXAMPLE:
1. Chargeable consideration is £275,000, made up of:
a. cash payment
b. 50% share of the outstanding mortgage
2. New sole owner pays £1,250 SDLT and MUST tell HMRC - SDLT1 form
a. (0% of £250,000 + 5% of £25,000)
Example: Fixtures and chattels SDLT
Priya wants to sell curret house and buy a new house.
- New house purchase price is £575,000
- Priya has asked you to apportion £10,250 to the carpets and curtains
Q: WHAT info to obtain BEFORE advising on tax she’ll have to pay on purchase?
Make sure £10,250 = a fair reflection of the value of the carpets and curtains
- IF NOT = apportionment MAY = fraud on HMRC = criminal sanctions
SDLT on OG purchase price for house (£575,000) = £16,250
BUT
SDLT IF purchase price is reduced (£575,000 - £10,250) = £15,737
- carpets and curtains = ‘chattels’ = NOT part of the land
Price apportionment would save Priya £513 in SDLT
Is SDLT payable on fixtures and chattels?
- How to save on SDLT - limitation / consequence
Payable on ‘land’ (includes fixtures) BUT NOT chattels
IF sale includes valuable chattels (carpets and curtains and freestanding white goods) CAN save on SDLT by apportioning part of the purchase price to the chattels
- BUT apportionment MUST be a fair reflection of value
- OTHERWISE = comitting fraud on HMRC = criminal sanctions
