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%.
SDLT is not tapered, like income tax. This means that if the value is over any of the thresholds, the whole value is taxed, not just the amount that is over the threshold.
So, if a property is bought for £126,000; the amount of SDLT (at current rates) payable is £1,260.00 (1% of £126,000). Likewise, if the property is bought for £124,000, then no SDLT is payable.
This situation results in an accumulation of property values at just below the threshold values. For example, there are many properties for sale at around £249,950. There really aren’t 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.
For further information on SDLT, a visit to the HMRC website is recommended – http://www.hmrc.gov.uk/sdlt/intro/rates-thresholds.htm