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1 Minute Guide to ... Stamp Duty Land Tax (SDLT)
(June 2005)
Introduction
Stamp Duty has been around for a long time. It was originally introduced in 1694. However, the face of Stamp Duty changed fundamentally from 1 December 2003, with the introduction of Stamp Duty Land Tax (SDLT). Here is a 1 Minute Guide to SDLT, featuring 10 key points on this relatively new tax regime. Such a brief guide can only provide a basic introduction to the subject, and specific professional advice should be sought whenever necessary.
10 Key Points
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What is SDLT?
SDLT is a tax charge on transactions relating to UK land and buildings. There are certain exemptions from SDLT (see below). The SDLT regime imposes a system of self assessment in respect of notifiable 'land transactions'. A document effecting or evidencing a land transaction may generally not be registered at the Land Registry unless it is accompanied either by a certificate from Revenue & Customs (form SDLT5) or a self-certificate by the purchaser (or lessee), together with the correct payment of duty.
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Who completes the land transaction return?
The liability to SDLT rests with the purchaser, who must deliver a land transaction return (form SDLT1) to HM Revenue & Customs within 30 days after the effective date of every notifiable land transaction. The return must be signed by the purchaser(s) (or a person with power of attorney for the purchaser), and include a self-assessment of tax chargeable. A 'notifiable' land transaction broadly comprises the following:
- The acquisition of a freehold or leasehold interest in land (in Scotland, the acquisition of ownership of land, including the interest of the proprietor of the dominium utile, or of the tenant's interest in property subject to a lease) where there is chargeable consideration. A return can be required whether or not any SDLT is payable, e.g. if the chargeable consideration is £120,000 or less (£150,000 or less for non-residential property) so that SDLT is chargeable at 0%. Certain exceptions apply to some transactions in connection with divorce, some variations of testamentary dispositions and the acquisition of residential property for chargeable consideration of under £1,000.
- The grant of a lease (including, in Scotland, exchange of missives of let) for a term of seven years or more for chargeable consideration. Once again, this applies whether or not any SDLT is payable.
- Any other land transaction (e.g. the grant of a lease for less than seven years) that attracts SDLT at a rate of 1% or more, or would do so but for some relief.
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What are the main SDLT forms?
SDLT1 - Land Transaction Return - Form SDLT1 is the main Land Transaction Return, which must be completed for 'notifiable' land transactions (see 2 above). Form SDLT1 is likely to cover the vast majority of residential transactions. In a minority of more complex cases, supplementary returns may also need to be completed. When the completed return (and the correct payment) is received and processed, HM Revenue & Customs will issue a certificate (see below), which must accompany any application for registration to the land registry when applying for registration of title.
SDLT2 - Land Transaction Return: Additional vendor/purchaser details – This form must be completed only where there are more than two vendors and/or purchasers.
SDLT3 - Land Transaction Return: Additional details about the land – This form must be completed only where additional information is required to identify the property or the transaction involves the sale of more than one piece of land or property.
SDLT4 - Additional details about the transaction – This form must be completed if additional information is required about the transaction (e.g. commercial transactions when the purchaser is a company, where land is part of a business sale agreement, some leases).
SDLT5 – Land Transaction Return Certificate – This certificate is generated from the information submitted in the SDLT return.
SDLT6 - Land Transaction Return guidance notes – How to complete the return for SDLT - Guidance notes SDLT6 cover the completion of the Land Transaction Return.
SDLT60 - Certification that no Land Transaction Return is required for a land transaction – This form is a self-certificate that no Land Transaction Return is required in respect of the land transaction (see below).
Further information on the above and other SDLT forms can be obtained from the Stamp Taxes section of the HM Revenue & Customs website.
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What is self-certification?
Certain land transactions do not need to be notified to HM Revenue & Customs. The following land transactions can be self-certified (on form SDLT60 – see above):
- The transfer or conveyance of a freehold or leasehold interest in land (in Scotland, the acquisition of ownership of land, including the interest of the proprietor of the dominium utile, or of the tenant's interest in property subject to a lease) for no chargeable consideration.
- The grant of a lease (including, in Scotland, the exchange of missives of let), if all of the following conditions are satisfied:
- The term of the lease is less than seven years;
- The amount of any premium (in Scotland, grassum) is not such as to attract a charge to SDLT at a rate of 1% or more (ignoring any available reliefs); and
- The amount of any rent is not such as to attract a charge to SDLT at a rate of 1% or more, ignoring the availability of any relief;
- Any other acquisition of an interest in land where the chargeable consideration is not such as to attract SDLT at a rate of 1% or more (ignoring any available reliefs); and
- Exempt transactions, e.g. transactions in connection with divorce, and the variation of legacies under a Will.
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Penalties for SDLT returns
Late returns - Purchasers are liable to penalties for late returns as follows:
- A flat-rate penalty of £100 if the return is up to three months late; and
- £200 if over three months late.
In addition, if the return of a 'chargeable transaction' (i.e. a return that is not exempt from stamp duty) is not delivered within twelve months after the filing date, the purchaser is liable to a penalty not exceeding the SDLT liability. If the purchaser fails to comply with a notice to deliver a return where the filing date has passed, HM Revenue & Customs can apply to the Commissioners for maximum penalties of up to £60 per day until the return is filed.
Incorrect returns - Tax geared penalties not exceeding the tax understated apply to fraudulently or negligently incorrect returns, and to failures to correct innocent errors in returns without unreasonable delay (i.e. within nine months of filing the return). Fines and imprisonment can be imposed on conviction for the offence of fraudulent evasion of tax. The maximum penalty for assisting in the preparation of an incorrect return (or other document or information) is £3,000. Tax-related penalties also apply to self-certificates relating to chargeable transactions given fraudulently or negligently, and to incorrect self-certificates if the error is not remedied without unreasonable delay.
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Who is liable to pay SDLT?
The purchaser is generally liable to pay the SDLT on a chargeable transaction, subject to specific rules for purchasers acting jointly, e.g. joint purchasers, partners and trustees. Payment of SDLT should be submitted at the same time as the land transaction return, i.e. SDLT is normally due within 30 days of the effective date of the transaction. If a return is amended before the filing date, any resulting SDLT liability is due by that date. If the return is amended on or after the filing date, the SDLT is due when the amendment is made. Separate rules apply in certain other circumstances (e.g. to applications to defer payment of SDLT in the case of contingent or uncertain consideration, and postponement of payment pending determination of an appeal).
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Is interest payable on SDLT paid late?
Interest is payable on late payment of SDLT from 30 days after the 'relevant date' (which in most cases will be the effective date of the land transaction) to the date of payment. Credit is given for SDLT paid in calculating any interest liability. Interest on unpaid SDLT is not allowable for income tax or corporation tax purposes. Penalties carry interest from the date of any determination to the date of payment. Interest is receivable on repayments of tax and penalties, from the date that payment is lodged with HM Revenue & Customs to the date when the repayment order is issued. Interest also applies to payments of SDLT lodged with Revenue & Customs in respect of land transactions, from the date of payment. Interest received is not taxable income of the recipient.
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Amending or correcting the return
The purchaser may amend the Land Transaction Return normally within twelve months after the filing date. HM Revenue & Customs may amend the return to correct obvious errors (e.g. arithmetical errors) or omissions in the return, within nine months of the day the return was delivered, or any amendment made. The purchaser has three months from the date of issue of a notice to reject the correction.
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Enquiries under SDLT
The 'process now, check later' system applies to SDLT as for self assessment. HM Revenue & Customs can correct obvious errors without opening an enquiry. In addition, Revenue & Customs can open an enquiry into a return (or an amendment, or a self-certificate) generally within nine months of the return (or amendment) being made. The 'one bite of the cherry' principle for self assessment enquiries also applies to enquiries into a Land Transaction Return (and a self-certificate), so that a return cannot be the subject of a second enquiry notice, except in consequence of an amendment. Most enquiries will be risk-based selections, although some returns will be randomly selected. The purchaser can apply to the General or Special Commissioners for a closure notice during the course of an enquiry. HM Revenue & Customs may also enquire into a self-certificate, by giving notice to the purchaser within nine months after the date on which the self-certificate was produced.
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What records must be kept?
Purchasers must keep adequate records to enable the delivery of a complete and correct return, and to preserve records of land transactions (e.g. contracts or agreements for sale, supporting plans and maps, etc) for at least six years from the effective date. Information contained in records, and copies of documents, may be retained instead of originals. The maximum penalty for each failure to comply is £3,000.
The requirement to keep and preserve records extends to information relating to self-certificates. Those records (or information contained in them instead of the original records) must be preserved for at least six years from the effective date of the transaction, and possibly longer (e.g. in the case of a Revenue & Customs enquiry). There is a penalty not exceeding £3,000 for failure to comply.
Finally, as mentioned previously, this '1 Minute Guide' provides only a short outline of SDLT. The rules can be very complex, and professional advice is recommended based on particular circumstances.
Disclaimer
The content of these guides is based on tax legislation in operation at the time of publication, which may subsequently have changed. Whilst every care has been taken in its production, no responsibility can be accepted for any action undertaken or refrained from as a consequence of this material. This information is for general guidance only. Specific professional advice should always be obtained based on personal circumstances. TaxationWeb Limited accepts no responsibility whatsoever for any action undertaken or refrained from as a result of the information contained herein.