7. Stamp Duty Land Tax

Question 1

What is SDLT

Answer 1

Tax on property transactions.

Question 2

What tax is payable by the purchaser of land in England and Norhtern Ireland?
- WHO submits a form to WHO?

Answer 2

1. Stamp Duty Land Tax (SDLT)
2. Buyer’s solicitor prepares and submits form to His Majesty’s Revenue & Customs (HMRC)

Question 3

What tax is payable by the purchaser of land in Wales?
- WHO submits a form to WHO?
- WHEN was SDLT used before?

Answer 3

1. Land Transaction Tax (LTT)
2. Buyer’s solicitor prepares and submits form to Welsh Revenue Authority (WRA)

BEFORE 1st April 2018 = SDLT used

Question 4

SDLT - WHAT can be taxed?

Answer 4

• 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

Question 5

Post-completion steps:
What happes AFTER seller’s solicitor sends the TR1 form to the buyer’s solicitor?

Answer 5

Buyer’s solicitor MUST arrange for any SDLT/LTT to be paid + submit relevant form (within time limit)

Question 6

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?

Answer 6

1. Submit Form SDLT1 + bank trasfer any SDLT due to HMRC
2. 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
3. On submittig return, buyer’s solicitor recieves proof SDLT has been paid = SDLT5 certificate
   a. SO land can be registered w Land Registry

Question 7

Consequence IF SDLT NOT filed / paid on time?

Answer 7

1. 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)
2. Attracts penalties and interest

Question 8

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?

Answer 8

1. Send a Land Transation Return to WRA + bank trasfer any LTT due
2. Within 30 days of effective date of the transaction (completion of sale / grant)
3. On submittig return, buyer’s solicitor recieves proof LLT has been paid = WRA certificate
   a. SO land can be registered w Land Registry

Question 9

What is the amount of SDLT due paid on?
- OTHER tax cosideration?

Answer 9

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)

Question 10

What 4/5 types of property transfer are exempt from SDLT?
- exceptions! (mortgages)
n.b. = DONT need to file a return!

Answer 10

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

Question 11

What do the SDLT thresholds and rates depend on?

Answer 11

1. Whether the property is residential, non-residential, or mixed
2. Value of transaction

Question 12

How is SDLT considered a tiered tax?

Answer 12

Because the applicable rate applies to the amount of consideration within the threshold, before applying higher rates to excess amounts

Question 13

SDLT rates for residential freehold buyers who are NOT first-time buyers

Answer 13

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

Question 14

What is the SDLT payable on the purchase of a £275,000 home by a second-time buyer

Answer 14

non-re= £1,250
- 0% on £250,000 + 5% on £25,000

SDLT rates for residential freehold buyers - NOT 1st-time buyers

Question 15

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?

Answer 15

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

Question 16

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?

Answer 16

= 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)]

Question 17

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?

Answer 17

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

Question 18

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.

Answer 18

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.

Question 19

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?

Answer 19

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)

Question 20

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?

Answer 20

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

Question 21

Is SDLT payable on fixtures and chattels?
- How to save on SDLT - limitation / consequence

Answer 21

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

Question 22

WHEN can first-time buyers of residential property claim relief from SDLT

Answer 22

IF *ALL buyers are first-timers *
AND:
1. intend to occupy property as their main residence
2. AND purchase price is no more than £625,000

Question 23

What are the reduced SDLT rates when the relief for purchase of first residence applies?

Answer 23

1. 0% on the first £425,000;
2. 5% on remainder up to £625,000
   a. (5% on the portion from £425,001 to £625,000)

Question 24

What is the upper limit of the property value for which SDLT relief is available to buyers of their first property to be used as their main residence?

Answer 24

£625,000
- IF property is worth more = no relief at all = normal rates

Question 25

Higher SDLT / LTT rates apply IF:

Answer 25

1. buyer already owns proeprty and buying an **additional property** 2. OR if **non-UK resident**

Question 26

Multiple homeowners = higher tax: If a buyer is buying a **second property**, what additional percentage is each rate increased by? - What is the **lower limit** for application of this rule? - WHEN did rule come into force?

Answer 26

**3%** rate increase on *2nd property* - e.g. the 0% rate becomes 3%; 2% rate becomes 5%, etc. **£40,000** = lower limit *(Must cost more to increase rate by 3%)* Aquired on / after **1st April 2016**

Question 27

What situation are 2nd homeowners' increased rates either - not charged - or charged but refunded?

Answer 27

Where new property replaces the purchaser's **main residence** , which has ALREADY been sold - **36 months** to sell old home

Question 28

What **SURCHARGE** applies to **non-UK residents** buying **residential** property in UK / Northern Ireland?

Answer 28

**2%** - applies **on top of** ALL other residential rates of SDLT (including the higher rates for additional dwellings)

Question 29

SDLT rates for **non-residential / mixed use freehold** transactions

Answer 29

Apply to slices of **purchase price** (tiered), SDLT: 1. Up to £150,000 = 0% SDLT (none) 2. From £150,001 to £250,000 = 2% SDLT 3. > £250,001 = 5% SDLT

Question 30

**Residential** properties worth **over WHAT amout** are taxed at WHAT **higher rate** IF bought by *companies / investment schemes* - WHAT **exceptions** apply?

Answer 30

IF bought by ***companies / investment schemes***, **residential** properties worth **>£500,000** are taxed at **15%** - UNLESS *rental business / developers / trustees / financial institutions / farmhouses*

Question 31

What is the SDLT payable on the purchase of a **£275,000 commercial property** by a buyer?

Answer 31

SDLT payable = £3,250 - = 0% on £150,000 + PLUS 2% on £100,000 + PLUS 5% on £25,000 n.b. *IF **VAT** is charged, SDLT is payable on the **VAT- inclusive sum***

Question 32

Differences between SDLT and LTT

Answer 32

1. Tax charged at **different rates** 2. **LTT** has **NO relief for first-time residential buyers**

Question 33

LTT rates for **residential freehold** properties

Answer 33

Apply to slices of **purchase price** (tiered), LTT: 1. Up to £225,000 = 0% LTT (none) 2. From £225,001 to £400,000 = 6% LTT 3. From £400,001 to £750,000 = 7.5% LTT 3. From £750,001 to £1.5 million = 10% LTT 5. > £1.5 million = 12% LTT

Question 34

What is the LLT payable on the purchase of a £375,000 home?

Answer 34

LTT payable = £3,000 - = 0% on £225,000 - PLUS 6% on £50,000

Question 35

**Higher** LTT rates (not 3% - diff for each) apply to **residential** property purchases IF...?

Answer 35

1. **Individuals** who purchase an **additional property** to their normal residence for **>£40,000** a. DOESN'T apply if property if **mixed use** - (eg. shop with. a flat above) 2. **Companies** purchasing a property **>£40,000** OR if interest they purchase is NOT subject to a lease which has **>21 years left**

Question 36

When is non-residential LTT is applicable?

Answer 36

For purchase of shops, offices, agricultural land

Question 37

LTT rates for **non-residential / mixed use freehold** properties

Answer 37

Apply to slices of **purchase price** (tiered), LTT: 1. Up to £225,000 = 0% LTT (none) 2. From £225,001 to £250,000 = 1% LTT 3. From £250,001 to £1 million = 5% LTT 5. > £1 million = 6% LTT

Question 38

What is the LLT payable on the purchase of a £275,000 commercial property?

Answer 38

LTT payable = £1,500 - = 0% on £225,000 - PLUS 1% on 25,000 - PLUS 5% on £25,000 n.b. IF **VAT** is charged, *LTT is payable on the **VAT-inclusive** sum*

Question 39

Where there are multiple linked transactions, what is the relevant consideration, and what is the downside of this?

Answer 39

The total of the chargeable considerations for each transaction. This may result in more SDLT being payable than if it was charged against each individually.

Question 40

What is the **value** of the transaction where land/buildings are given to a **company** in exchange for **shares**? - *Example:* IF a property has a market value of £300,000 but the company only pays a chargeable consideration of £150,000, WHAT is SDLT payable on? - n.b. on *connected people*

Answer 40

The **market value** of the land/buildings - NOT paid amout (chargeable consideration given) + shares EXAMPLE: SDLT is payable on £300,000 *n.b. SDLT is payable when person who transfers property is **‘connected’** with company (director / relative)*

Question 41

What are the **penalties** imposed if SDLT ***return is filed*** (1) up to 3 months late, (2) >3 months late, and (3) >1 year late, ***regardless of whether SDLT is actually owed?***

Answer 41

Up to 3 months: **£100** > 3 months: **£200** > 1year: **Up to 100%** of the SDLT due - PLUS **interest**

Question 42

What relief is available where due to totaling the considerations, the SDLT payable is more than it would be individually?

Answer 42

SDLT is calculated based on the average consideration, i.e. total considerations divided by the number of properties

Question 43

What further relief is available when *six or more* residential properties are purchased in a single transactions?

Answer 43

Purchaser can choose to apply **non-residential** rates

Question 44

How is SDLT payable on the grant of a **new** lease calculated? [**Post-completion** steps]

Answer 44

**Residential** AND **non-residential** = paid on **BOTH** of **[VAT-inclusive]**: 1. **Lease premium** AKA **purchase price** of lease paid up front a. ...*at **freehold rates***, AND 2. Net present value of the **rent** payable (**NPV** ) a. ...at lower rate - ***different** rates (for residential vs non-residential)* *n.b. ONLY purchase price paid on **assigned AKA old** leases - NOT NPV*

Question 45

Define NPV of the rent payable?

Answer 45

NPV = Net present value of the **rent** payable AKA **[VAT-inclusive] total value of annual rents** due over course of lease

Question 46

How is SDLT payable on the **assignment of an old (commercial / residential)** lease? [**Post-completion** steps]

Answer 46

**Residential** AND **non-residential** = **ONLY** paid on **[VAT-inclusive]**: 1. **Lease premium** AKA **purchase price** of lease paid up front a. ...*at **freehold** rates* SDLT **NEVER** charged on the **rent (NPV)** - *already paid when lease was granted* - like WELSH assignment of old leases

Question 47

What are the SDLT rates for the **lease premium** of a **residential / non-residential** leasehold purchases?

Answer 47

SAME rates as for the **VAT-inclusive consideration** on the **sale of freehold** land - n.b. DIFFERENT for residential vs non-residential AKA: Residential: 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 Non-residential / mixed: 1. Up to £150,000 = 0% SDLT (none) 2. From £150,001 to £250,000 = 2% SDLT 3. > £250,001 = 5% SDLT

Question 48

What are the SDLT rates for the **NPV AKA net present value** of **residential leasehold** purchases?

Answer 48

SDLT chargeable to **VAT-inclusive NPV** (tiered): 1. Up to £250,000 = 0% SDLT (none) 2. > £250,000 = 1% SDLT ...**PLUS** SDLT payable for **lease premium** (with freehold rates) = TOTAL SDLT

Question 49

What are the SDLT rates for the **NPV AKA net present value** of **non-residential + mixed leasehold** purchases?

Answer 49

SDLT chargeable to **VAT-inclusive NPV** (tiered): 1. Up to £150,000 = 0% SDLT (none) 2. From £150,001 to £5 million = 1% SDLT 3. > £5 million = 2% SDLT ...**PLUS** SDLT payable for **lease premium** (with freehold rates) = TOTAL SDLT

Question 50

How is LTT payable on the **assignment of residential** leases?

Answer 50

In **Wales**, residential leases are **NOT split into** the **lease premium** and **NPV**. - LTT NEVER charged on the **rent (NPV)** *(like old leases - SDLT)* LTT is paid on the **lease premium** at ***Welsh freehold rates***: AKA 1. Up to £225,000 = 0% LTT (none) 2. From £225,001 to £400,000 = 6% LTT 3. From £400,001 to £750,000 = 7.5% LTT 3. From £750,001 to £1.5 million = 10% LTT 5. > £1.5 million = 12% LTT

Question 51

What are the LTT rates for the **lease premium** of a **non-residential / mixed** leasehold purchases?

Answer 51

SAME as the [**VAT-inclusive**] WELSH LTT rates for **non-residential / mixed use freehold** properties: AKA 1. Up to £225,000 = 0% LTT (none) a. **EXCEPT:** 0% on first £335,000 **NOT available** IF highest payable rent **exceeds £13,500** - *apply **1%** instead!>>* 2. From £225,001 to £250,000 = 1% LTT 3. From £250,001 to £1 million = 5% LTT 5. > £1 million = 6% LTT

Question 52

What are the Welsh, LTT rates for the **NPV AKA net present value** of **non-residential + mixed leasehold** purchases?

Answer 52

LTT chargeable to **VAT-inclusive NPV** (tiered): 1. Up to £225,000 = 0% SDLT (none) 2. From £225,001 to £2 million= 1% LTT 2. > £2 million = 2% SDLT ...**PLUS** SDLT payable for **lease premium** (with *WELSH* freehold rates) = TOTAL SDLT

Question 53

Example: Yesterday a landlord granted a lease of office premises in England to a tenant for a term of 10 years. The **consideration** for the lease s the payment of a commercial, open- market rent with a **premium of £100,000**. The landlord **opted to tax** the property for VAT purposes **before lease was granted**. - Describe the taxation position for this transaction

Answer 53

Tenant **MAY** need to pay SDLT on the ***VAT-inclusive amount*** of the **rent** - *WON'T need to pay SDLT for the **premium*** WHY? - On the grant of a lease, SDLT is *potentially* payable BOTH on any **premium** charged by the landlord and **rent** reserved by the lease (NPV). - LL opted in t VAT, SO SDLT is charged on the VAT- inclusive amounts: OG premium = £100,000 SO **VAT- inclusive** premium = £1**2**0,000 - = SO SDLT will NOT be charged on VAT-inclusive premium (applicable rate for consideration NOT exceeding £150,000 = 0%). BUT MAY have to pay VAT-inclusive amount for the **rent NPV**.