STAMP DUTY LAND TAX

Question 1

definition

Answer 1

When a person buys or leases land or buildings in the UK, they must send HMRC a Stamp Duty Land Tax (‘SDLT’) return within 14 calendar days of completion

Question 2

Payable Based on Money or Money’s Worth

Answer 2

The amount of the tax due is based on the consideration exchanged for the property.

Question 3

Property Given to a Company in Exchange
for Shares

Answer 3

If land and/or buildings are transferred to a company con-nected with the transferor in exchange for shares, the transaction is deemed to be made for the market value of the land. This situation will often occur when a sole trader incorporates their business. The company will have to send an SDLT return on completion and pay SDLT if the fair market value of the land exceeds the applicable threshold.

Question 4

Exempt Transactions
A number of transactions are exempt from SDLT including:

Answer 4

*Property transferred as a gift;
*Property transferred to a spouse;
*Property transferred to a former spouse upon divorce; and
*Property transferred under a variation of a will changing the benefciary entitled to the property within two years of the decedent’s death.

Question 5

Late Penalties

Answer 5

Interest may be charged if SDLT is paid late. In addition, a penalty may be imposed if the land transaction form is sub-mitted late.
*If the form is fled up to three months late, a fxed penalty of** £100** is automatically imposed.
*If the form is submitted over three months late, a fxed penalty of** £200** is automatically imposed.
This penalty is imposed regardless of whether SDLT is ac-tually payable on the transaction.

Question 6

THRESHOLDS AND RATES OF SDLT

Answer 6

The threshold and applicable rates for paying SDLT depend on whether the property purchased is residential or non-res-
idential/mixed-use property.

Question 7

Additional Charge forAdditional
Residential Purchases

Answer 7

1. If a person already owns a residential property and buys an additional residential property, an additional 3% is charged in each band on the purchase of additional residential properties.
2. but these higher rates are not charged for transactions under £40,000.
3. They also do not apply or, in some cases, are charged but refunded if the new property replaces the purchaser’s only or main residence.

Question 8

Leases

Answer 8

1. The tax may be payable on either or both of any lease premium paid (that is, any up-front payment, usually made with respect to long-term leases, as discussed in your propertymaterials) and
2. the net present value of the rent payable to the landlord over the entire lease term. The tax for each part is calculated separately.

Question 9

SDLT Rates on Leases

Answer 9

The rates of tax on lease premiums are the same as the rates given previously, but the rates on the net present value of the rent are lower.

Exam Tip
If an SQE question asks you to calculate SDLT on a lease (which is not likely, as the calculation can be
quite complex), the facts would have to include the net present value of the lease and the applicable rates and thresholds. Therefore, you do not need to memorise these fgures. Nonetheless, for purposes of illustration, for non-residential leases, net present value (‘NPV’) is taxed at 0% for the frst £150,000, 1% for NPV amounts greater than £150,000 but not more than £5,000,000, and 2% for amounts over £5,000,000.

EXAMPLE
Granite plc is granted a lease of a factory by Teak plc. The lease is for seven years. The premium payable by Granite plc is £245,000, the annual rent is £30,000, and the net present value of the annual rent is £183,000. To calculate the SDLT payable by Granite, we frst calculate the SDLT payable on account of the lease premium, and then calcu-
late the tax due on the rent.
SDLT on Lease Premium: Since the lease is for non-resi-dential property, the frst £150,000 will be taxed at 0%. Theemainder of the lease premium (£95,000) all falls within the 2% tier. 2% x £95,000 = £1,900.
SDLT on Rent: Remember, we calculate the tax on the **rent separately and we use the present value of the rent rather than the actual full rent (here, £183,000 rather than £210,000). For non-residential property, the frst £150,000
rent is taxed at 0%. After that, net present value up to £5 million is taxed at 1%. Thus, the remaining £33,000 of net present value above £150,000 is taxed at 1% (£330).
Total SDLT payable = £1,900 + £330 = £2,230.

Question 10

SDLT RELIEFS

Answer 10

1. Relief for Purchase of First Residence
2. Linked Transactions

Question 11

Relief for Purchase of First Residence

Answer 11

1. There is relief from the standard residential rates for indi-viduals purchasing their frst property as their** main or only** residence for consideration of up to** £625,000**.
2. The rates which apply are 0% on consideration up to and including £425,000, with 5% on any remainder (so far as not exceeding £625,000). If the consideration exceeds £625,000, no relief is given, and the usual rates apply.

Question 12

Linked Transactions

Answer 12

1. When there are several linked transactions, the relevant consideration is the total of the chargeable considerations for each transaction. This may result in more SDLT being payable than if SDLT was charged on the individual transactions.
2. There is relief available for purchasers of residential property who acquire more than one dwelling via linked transactions. Where the relief is claimed, the rates of SDLT on the consid-eration attributable to the dwellings are determined by the mean consideration (the aggregate consideration divided by
   the number of dwellings) rather than by the sum of the aggre-gate.
   EXAMPLE
   X Ltd buys 10 fats for £1 million, resulting in mean consid-eration of £100,000. The company will owe £30,000 SDLT: Each unit will be taxed based on this £100,000. Although under the £125,000 threshold, because the company will own more than one residential unit, it will have to pay the additional 3% tax for each unit. Therefore, its tax is £100,000 x 3% x 10.

Six or More Residential Properties
Another form of relief is available when six or more residen-tial properties (fats, for example) are purchased in a single transaction. The purchaser can choose to apply non-residen-tial property rates instead.
EXAMPLE
Same facts as the example above but X Ltd opts to pay the non-residential property rate. The tax would be 0% on the frst £150,000, 2% on the amount between £150,001 and £250,000 (£2,000), and 5% on the remaining £750,000
(£37,500). Thus, using this option would result in X Ltd ow-ing £39,500 tax rather than £30,000 tax and would not be recommended.