News
Stamp Duty Land Tax
September 2011
INTRODUCTION:
If you are buying or leasing a property it will normally be a legal requirement that you complete a Stamp Duty Land Tax return form to H M Revenue & Customs and pay the required Stamp Duty Land Tax within strict timescales or face heavy penalties.
THE STAMP DUTY LAND TAX RETURN:
Like your Income Tax return the SDLT return is a complex form running to many pages and it is your duty to make sure it is correct and complete on a ‘self-assessment’ basis and that the SDLT is properly calculated and paid.
WHAT WE DO:
We will normally prepare the SDLT return form for your approval. When you are just buying your own home the estimate we have given you will include the cost of doing this. We will prepare the form on the basis of the information you supply and will not necessarily check that the information you give us is accurate. It is important you provide us with all relevant data and information.
IF IN DOUBT:
If you do not know if something is or might be relevant, please tell us.
In particular there are complex rules governing ‘linked transactions’ and deals between family members, partners, related companies, sub-sales and leases.
The questionnaire overleaf which we ask you to complete is designed to help us advise you and ensure that the SDLT form that we complete for you and the tax that has to be paid are correct.
WHEN IS THE TAX PAYMENT DUE?
Normally any necessary Stamp Duty Land Tax has to be paid within 30 days after the completion date. However, sometimes it is due earlier. For example:-
- Where you are let into the property earlier for any purpose (however short the period of time is and whatever you are being allowed to do in the property).
- Where you pay 90% of the purchase price before completion.
- Where you are related to the seller and already live in the property.
- Where you as a developer are entering into a joint venture agreement with the landowner.
LINKED TRANSACTIONS:
If you or a family member buy or lease more than one property from the same seller / landlord (or people or companies connected with you or with that seller / landlord do so) or e.g. you buy a house and your wife or partner buys its garden: the two deals will be linked and Stamp Duty Land Tax will be payable on both / all of them calculated on the overall price. This may mean that SDLT has to be paid at a higher rate.
BUYING / LEASING PROPERTIES BY SEPARATE DOCUMENTS:
This does not make any difference usually if the truth is that the deal you struck at the outset involves more than one property. Even if you use different solicitors for each transaction.
‘SPLITTING THE PRICE’:
SDLT is not generally payable on the fair value of furniture, carpets, loose belongings and equipment. Any attempt to artificially distort the price of the property by artificially increasing the value of these items is a criminal offence. Fixtures (such as built-in furniture) and anything that forms part of the fabric of buildings on the property form part of the purchase price of the property itself.
‘GOODWILL’:
If you are buying the goodwill of a business along with e.g. with the freehold or lease of a property, you will have normally to pay SDLT on the price of the goodwill as well as the price of the property. There are exceptions which you will need to discuss with us and your tax advisors.
‘OVERAGE’ or ‘PLANNING CLAWBACK’:
If you are a developer and in addition to the purchase price you are agreeing possibly to pay further sums to the seller in the future (dependent on planning permission being obtained over the land that you are buying or dependent on the value / price at which the houses you are building on the land get sold) then before completion you will have to make a fair assessment of the likely amount to be paid in the future, include these details in the Stamp Duty Land Tax return form and pay Stamp Duty Land Tax on the basic purchase price and the estimated ‘overage’. The rate of SDLT payable may increase as a result (if the basic price and the estimated overage exceeds a relevant threshold.) You may apply to defer payment of the SDLT but you must do so within a maximum of 30 days after completion. If you subsequently end up paying more overage to the seller than you have estimated then you must subsequently complete a supplementary SDLT form and pay the additional tax. If you ‘overestimate’ you may be able to reclaim the difference.
SDLT RATES & THRESHOLDS:
- Buying or leasing two or more properties together generally means that you pay SDLT at the rate applicable to the overall price (not the lower rate that may apply to each of the properties if bought separately from entirely unconnected sellers).
- Special rules apply if you buy a block of six or more houses or flats in one deal (with effect from the Finance Act 2011).
- Special rates apply to genuine ‘first time buyers’ and a higher rate applies to those buying homes (houses or flats and whether intended for owner occupation, renting or re-development) where the price is over £1 million.
VAT & SDLT:
Where VAT is payable on the purchase price (or in the case of a lease: on the premium and / or the rents) generally SDLT is calculated on and payable by reference to the gross figures.
LEASES & SDLT:
Complex rules and calculations apply to both any premium payable on the grant of lease and also the rents payable under the lease. If you are acquiring a lease and remain in occupation at the end of the lease or agree rent changes at a later point with the landlord or there is a rent review within the first five years of the lease, you will need to complete a supplementary Stamp Duty Land Tax form and submit it to HMRC with any appropriate extra SDLT.
We do not accept responsibility for reminding you about this and any work required in connection with any further Stamp Duty Land Tax return forms will be the subject of a separate charge.
CALCULATING UNKNOWNS:
Legally it is up to you as the taxpayer to calculate the correct SDLT (and HMRC’s own online calculator has been known not to work correctly or at all at times).
You as tenant will need to make educated ‘guesses’, particularly in the case of what rents may be payable in the future under a commercial lease and what further payments may be due to a seller where overage or planning clawback provisions apply. We will try and assist you to do so. Where you are simply buying a flat or a house as your home there will usually be little problem. Where you are buying development land or taking commercial premises, you may need to obtain at your own cost a written report from a valuer to support your calculation of SDLT.
OUR RESPONSIBILITY TO YOU & LIMITATIONS:
- In normal cases we will prepare the SDLT form for you, send that to you for approval and signature and when you have returned it and we have been provided with the appropriate SDLT monies, we will file the return and pay the SDLT. We will not do so until we have got both of these from you.
- We do not guarantee to remind you or chase you for the signed form or payment and will not be responsible for any fines or penalties for late submission / payment.
- In more complex cases we reserve the right at your cost to seek advice from tax counsel, valuers and others (although we will discuss this with you generally beforehand and / or ask that you engage others - such as your own tax advisors or accountants) to complete the appropriate returns and to file them and / or make an additional charge for the time we spend on the preparation and completion of any SDLT form which is complex.
- We will make additional charges for dealing with any subsequent enquiries from HMRC and / or your accountants and tax advisors and dealing with any queries or being involved in any tax investigations subsequently raised by HMRC.
OUR LIABILITY TO YOU:
We limit our liability to you for any negligence or breach of instructions on our part in the completion of any SDLT return form to a maximum of the difference in the SDLT between the sum which should have been paid at the date of completion of your purchase and the amount actually paid on the basis that there are no other linked or associated transactions. We will not be liable to you for any consequential losses (including the costs of accountants, valuers and tax advisors employed by you), nor for the effect of any failure by you or any other person to properly complete any other SDLT form at any time, or to provide appropriate information to HMRC at an appropriate time.
DISCLOSURE:
We reserve the right to disclose all facts which we consider are or may be relevant to HMRC including those which may go against the basis of calculation of SDLT which may be most favourable to you. (There are two reasons for this: We have a duty to HMRC as ‘tax agent’ in addition to the duties we owe to you. Secondly: If HMRC had been given the full facts, their ability to raise an enquiry - and consequently to look for penalties etc - will usually be lost after nine months.)
If we believe that you are failing to provide relevant information or intend to submit or request us to submit an incorrect SDLT return we may:
- Refuse to complete or assist in the completion of any such form and / or to file it.
- In accordance with our obligations (as detailed in our Terms & Conditions of Business) report that information to appropriate authorities without informing you that we are doing so.
We have a legal obligation so to do. Additionally that is the case where we have reason to believe that you are planning to not submit any such return when required.
SDLT SAVING SCHEMES:
We do not give advice on and do not undertake to draw to your attention to any actual or potential SDLT saving schemes. Our experience is that some of these schemes may be promoted by fraudsters and others may be based on an incorrect or incomplete interpretation of highly complex tax and other legislation. If you wish to avail yourself of any such scheme, we strongly recommend that you seek highly expert SDLT advice from your own accountants and tax advisors (if competent to give such advice) or from tax counsel. The identity of barristers and chambers purporting to have expertise in this area may be found online. Where others are retained to give such advice and where you wish to avail yourself of any such scheme, our retainer will be limited to carrying out the property aspects of the transaction in accordance with the instructions that you and those third parties give to us as we interpret those instructions.
