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SDLT – What’s it to me?
From 1 April 2016, anyone buying residential property in addition to their main home will be subject to a 3% increase on the Stamp Duty Land Tax (SDLT) that would currently be payable on the transaction. SDLT is therefore currently high on the agenda for buy-to-let landlords and those seeking to buy second homes. Although the changes do not affect transactions involving commercial property, it is still important to be aware of SDLT and the general rules surrounding it.
What is SDLT?
SDLT is a tax on land transactions and is chargeable on any acquisition of a chargeable interest in land (other than an exempt transaction).
In many cases, the acquisition of the chargeable interest will be by way of purchase, but an acquisition also includes:-
- The creation of a chargeable interest. For example, the grant of a lease is treated as an acquisition by the tenant and a disposal by the landlord.
- The surrender or release of a chargeable interest. For example, the surrender of a lease is a disposal by the tenant and an acquisition by the landlord.
- The variation of a chargeable interest. For example, certain variations to the terms of a lease may be a disposal or acquisition by either party.
The following transactions are exempt:-
- Non-lease acquisitions where the chargeable consideration (including linked transactions) is less than £40,000.
- The grant of a lease for a term of seven years or more where:-
-the chargeable consideration other than rent is less than £40,000; and
-the annual rent is less than £1,000.
- The assignment or surrender of a lease where:-
-the chargeable consideration for the assignment or surrender is less than £40,000.
-the lease was originally granted for a term of seven years or more; and
- The grant, assignment or surrender of a lease for a term of less than seven years where the chargeable consideration does not exceed the zero-rate threshold.
SDLT is a self-assessed tax and therefore it is the taxpayer’s responsibility to ensure that correct information is supplied on a return.
For commercial land transactions the applicable rates of SDLT for freehold and leasehold purchase transactions are as follows:-
0% – Up to £150,000 – freehold or leasehold premium with annual rent under £1,000
1% – Up to £150,000 – leasehold premium with annual rent of £1,000 or more
1% – £150,001 to £250,000
3% – £250,001 to £500,000
4% – Over £500,000
On the grant of a lease, SDLT is payable on the value of the rent over the lifetime of the lease (the Net Present Value) and is charged as follows:-
0% – Up to £150,000
1% – the portion over £150,000
Linked transactions are those that form part of a single scheme, arrangement or series of transactions between the same seller and buyer or persons “connected” with them (connected parties include spouses, siblings, parents and group companies for example). Several transfers negotiated between the same parties at the same time even where those transfers are documented independently, are also caught under the Linked Transaction Rules.
Where a land transaction is one of a number of linked transactions, the subject matter of the transactions is viewed as a whole for the purposes of calculating the total amount of SDLT due.
A land transaction return must be submitted to HMRC within 30 days of the effective date of the transaction (usually completion). Failure to do so attracts the following penalties:-
• Three months late: £100.
• Three to 12 months late: £200.
• Over 12 months late: £200 plus an amount equal to the unpaid SDLT.
If a submitted return is incorrect, penalties are based on the amount of tax understated; the nature of the behaviour and the extent of disclosure by the taxpayer. There will be no penalty where a taxpayer makes a mistake, but there will be a penalty of up to:-
• 30% for failure to take reasonable care;
• 70% for a deliberate understatement;
• 100% for a deliberate understatement which has been concealed.
It is therefore essential that your legal advisers are made aware of all of the circumstances surrounding a commercial property transaction in a timely fashion, and that your accountant is involved at an early stage in order to assess the global tax implications and avoid costly penalties.
For legal advice SDLT or to discuss any other commercial property matter please contact us or call 01452 411601.