*Disclaimer – Please Note: I am NOT an expert in taxation and the information provided below should NOT be taken as definitive advice. It is for guidance only. All readers and propospective investors/developers are highly advised to seek professional advice in taxation matters.
Stamp Duty Land Tax (SDLT) was introduced in 2003; and although it is often still known as ‘Stamp Duty’, it is now different from it.
The original Stamp Duty was first introduced in 1694, and was a tax on documents (i.e. documents used in transactions). Several years ago, Stamp Duty was referred to as a ‘voluntary tax’. This is because there wasn’t much control over registration for it (it was meant to be compulsory). Now however, there is no escaping it.
Stamp Duty (as opposed to SDLT) is payable at the point of purchase, on transactions that are evidenced in writing. When the duty has been paid (this should be within 30 days to avoid penalties), the Stock Transfer Form (in the case of shares) is stamped. HMRC delegates the determination of the Head Charge to the Stamp Office who states the amount of stamp duty that must be paid. Stamp Duty Reserve Tax is payable on electronic transactions (such as some company share purchases).
The property equivalent to Stamp Duty is SDLT. It is paid in the following circumstances:
- At the point of purchase (on qualifying properties)
- At the commencement of a long-leasehold occupation
- At the commencement of commercial tenancy agreements, where the total rent payable before the tenant’s first opportunity to ‘break’ amounts to a sum that qualifies for SDLT.
Current SDLT rates are:
- For properties up to £125,000, the rate is zero. No SDLT is payable.
- For properties from £125,000 to £250,000; the standard rate is 1% of the property value , and for first-time buyers, it is zero.
- For properties from £250,000 to £500,000; the rates for standard and first-time buyers is 3% of the property value.
- For properties from £500,000 to £1m, the rates are 4%.
- For properties over £1m, the rate is 5%.
From late 2014, SDLT on residential property is tapered, like income tax. This means that if the value is over any of the thresholds, the whole value is not taxed, just the amount that is over the threshold.
So, if a property is bought for £330,000; the amount of SDLT (at current rates) payable is £1,250.00 (1% of £125,000) plus £2,400 (3% of the remaining £80,000) = £3,650.
Prior to this change in the rules, there tended to be an accumulation of property values at just below the threshold values. For example, there were many properties for sale at around £249,950 but not many at £255,000 (assuming these values are the sale prices).
It must be stressed, that SDLT is paid by the purchaser (although the Coalition Government is understood to be considering plans to transfer the SDLT liability to the vendor). It must also be paid in a way that is completely separate from the mortgage. I have heard of first time buyers enquiring whether they can include the SDLT charge in their borrowing from the mortgage company. This is not permitted!
If a new leasehold property is occupied by a tenant, the rates are:
- For tenancies that total less than £125,000 for the life of the lease, no SDLT is payable.
- For tenancies that total more than £125,000 over the life of the lease, 1% of the value that exceeds £125,000 is payable (so if a tenancy will total £130,000 over the total lease term, £50 is payable (1% of £5,000)).
Clearly, the lease term and rent would have to be quite substantial to qualify for this.
On commercial property, slightly different rates apply.
For properties that are not newly built:
- For purchase values up to £150,000; or annual rent is below £1,000, the rate is zero.
- On purchase values up to £150,000; or annual rents above £1,000, the rate is 1%.
- For purchase values between £150,000 and £250,000, the rate is 1%.
- For purchase values between £250,000 and £500,000, the rate is 3%.
- For purchase values above £500,000, the rate is 4%.
For commercial properties that are newly built:
- For tenancies with a term-value of up to £150,000, the rate of SDLT is zero.
- For tenancies with a term-value of more than £150,000, then 1% of the value that exceeds £150,000 is payable.
Because SDLT is payable on the transfer of an interest in property, liability can arise when a property is transferred into or out of a Partnership. This is (as I understand it) one of the most challenging areas of property tax but I will attempt to expalin as well as I can…
- The relationship between partners is important. If 2 family members form a property investment company, no additional SDLT is due over the usual purchase liability. So this means that provided SDLT was paid by the family members on acquiring the respective property interests, no additional SDLT should be due when the interests are transferred to the partnership.
- If an unrelated partner joins (i.e. not a family member) any tranfer of a property interest into the property investment company will attract SDLT.
- If the individual members of a property investment company decide to go their seperate ways and transfer the interests in properties between them, 2/3rds of each individual’s interest will be liable for SDLT.
- If an individual purchases a share in a property investment company (for example 25%), then that person is liable for that proportion of the property interest (so 25% of the combined property interest for SDLT would be payable).
For further information on SDLT, a visit to the HMRC website is recommended – http://www.hmrc.gov.uk/sdlt/intro/rates-thresholds.htm