Stamp Duty Land Tax - The Land Transaction Return (Part 1)

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Taxation by Matthew Hutton MA, CTA (fellow), AIIT, TEP and Sharon Anstey LLB (Hons), CTA (Associate), IAC

Matthew Hutton MA, CTA (fellow), AIIT, TEP and Sharon Anstey LLB (Hons), CTA (Associate), IAC offer a guide to the stamp duty land tax compliance documentation and point to some practical problems with the forms. Part I of this two-part article introduces the principal form SDLT 1 and comments on the first 48 out of 71 Boxes. This two part article was published in Taxation on 5th and 12th February 2004 and is reproduced with kind acknowledgement to LexisNexis Butterworths Tolley.

STAMP DUTY LAND TAX is now a fact of life. Those responsible for compliance obligations on land transactions carried out since the implementation date of 1 December 2003 will already have had to turn their minds to reporting the transaction.

This two part article follows on the first of a two part series by Marc Selby in Taxation, 9 October 2003. That article rehearsed the three types of ‘notifiable transaction’ where a return must be made, within 30 days after the ‘effective date’, together with payment of any tax that may be due. That said, the Inland Revenue announced on 12 November 2003 that, within the ‘light touch’ compliance régime to be applied in the early days of the new tax, a 40-day period for submission of the return would be accepted.

This article takes readers through the detail of the information required to complete the return, with additional comment on some practical points arising. In this, the writers acknowledge their indebtedness to general comments and suggestions made by both Paul Clark of Cripps Harries Hall and Jeremy de Souza of White & Bowker. Any errors in the article, however, are the responsibility of the writers alone.

All statutory references are to Finance Act 2003.

Filling in the return

The land taxation return must be in the form (which is SDLT 1) prescribed in the Stamp Duty Land Tax (Administration) Regulations 2003, must contain the prescribed information and must include a declaration by the purchaser(s) that the return is correct and complete to the best of his/their knowledge (see paragraph 1 of Schedule 10). The land taxation return has been prescribed by Revenue regulations, which may provide for different kinds of return (though not in the first instance, other than the supplementary pages). There are in the official forms a number of deficiencies, of which the Revenue is aware, which make it difficult to complete the forms as drawn, in particular cases. The writers have been told that some of these at least will be corrected in revised versions in due course.

General instructions

Form SDLT 1 notes that black ink and capital letters are required. Boxes which are not applicable are to be left blank. Amounts are to be shown in whole pounds rounded down to the nearest pound: this includes tax payable. The form must not be folded and must be returned unfolded in the envelope provided, although surely it cannot be a legal requirement that the Revenue’s envelope is used. The declaration at Box 71 on page 6 must be signed, as must the payslip on page 7 which is sent with the payment to: Inland Revenue, Stamp Taxes/SDLT, Comben House, Farriers Way, Netherton, Merseyside, Great Britain, L69 1BY. As yet, there is no facility for the electronic submission of returns (although they can be completed electronically, prior to downloading for signature by the purchaser and delivery to Netherton). An enquiry line (0845 603 0135) is open 8.30 am to 5.00 pm Monday to Friday except bank holidays.

Further copies of the return and any supplementary pages can be obtained from the order line on 0845 302 1472. Each return form obtained from the order line has a unique pre-printed reference number or URN (and so cannot be photocopied, though the supplementary pages can be copied, provided that they are of sufficient quality for image scanning). Alternatively, an unnumbered form SDLT 1, whether found on the Revenue’s website or as produced by one of the approved software houses can be used, in which case the unique pre-printed reference number on the accompanying payslip obtained from the order line is noted on the form.

The form is divided into several parts. There are in all 71 Boxes to be completed, to which the numbers in brackets below refer. Generally, as noted below, form SDLT 1 and the supplementary sheets are not exhaustive, in that they do not cover every conceivable circumstance. In particular, if there is insufficient space on the form to enter information, no help is given by the guidance notes as to whether continuation sheets are to be issued or whether blank sheets can be used.

Beware!

Where the land taxation return is sent to the client for signature, advise the client that the form must be signed by him (or by an attorney, but not by an agent) in black ink. Signature in the wrong colour ink will lead to the return being rejected, which might result in penalties.

About the transaction

An alphabet code is used to describe all of (1) the type of property, (2) the transaction, and (3) the estate or interest transferred. The codes are given in the guidance notes (form SDLT 6), which adopts the same numbering as the land taxation return. However, the cases are very limited. For example, if the transaction consists in the variation of a lease, the release of a restrictive covenant or the grant of a right of way, there is nothing to indicate the precise nature of the transaction. The effective date of the transaction must be given (4), together with the date of any contract (6).

Box 5 asks if there are any restrictions, covenants or conditions affecting the value of the estate or interest transferred or granted. The room given for such information is woefully inadequate: just 42 spaces. Certainly in commercial leases, almost every covenant affects value. It might not be inaccurate to tick the ‘yes’ Box and add, for details, ‘every covenant and condition in the lease’. The Revenue has commented that Box 5 is for the benefit of the Valuation Office Agency and that only out of the ordinary covenants should be mentioned: it would usually be sufficient to state something like ‘ordinary covenants and conditions’.

Box 6 asks for the date of the contract or, in Scotland, conclusion of missives.

Box 7 asks if there is any land exchanged or part-exchanged: if so, details must be given. But not every exchange is an exchange of land. How, for example, is the land taxation return (in the required prescribed form) to be completed where a tenant receives a lease extension of, say, ten years in return for giving up a right of way which is preventing development? How is the land (which has no address) to be given in exchange for the lease extension to be shown? The answer given by the Revenue is “Do the best you can”!

Box 8 asks if there was a prior option agreement.

About the tax calculation

Box 9 asks if relief is claimed and if so an alphabet code is to be entered. Charity relief requires the charity's registered number. Where relief is claimed on part of the property, the amount remaining chargeable must be shown. Box 10 asks for the total consideration (but, oddly, not including the net present value of the rent – see below) including the VAT which is separately specified at Box 11. The form of the consideration is entered at Box 12, according to codes from the guidance notes, e.g. cash, debt, company shares, services or contingent. Box 13 asks whether the transaction is linked to any other: if so, the total VAT inclusive consideration must be given for the linked transactions. The total amount of tax due is shown at Box 14 (adding together Boxes 24 and 25), with Box 15 confirming the total amount of tax paid or enclosed with the notification (and whether that includes any penalties or interest due).

This whole section of the return is confusing in its treatment of rent. Rent can be part of the chargeable consideration, as Schedule 5 makes clear. But rent is not listed in the guidance notes at Box 12: the Revenue has confirmed that it is to be ignored in answering Box 10. The same point applies in answering Box 13, when giving the total consideration for all the linked transactions. The Revenue has commented that the form will be updated to take account of paragraph 5 of Schedule 17A, stating meanwhile that the linked transactions ‘Yes’ Box must be ticked where appropriate. All that said, Box 14, requiring the total amount of tax for the transaction, must clearly include tax referable to rent (though this is not stated by the guidance notes).

About new leases

Boxes 16 to 25 request lease details as follows:

- Type of lease according to an alphabet code in the guidance notes (16), start date as specified in the lease (17) and end dates (18) with the number of months of any rent free period (19).The guidance notes state that the start date may predate the date of execution. Although paragraph 6 of Schedule 5 has been repealed, the Revenue has confirmed that it continues to apply paragraph 6, in regarding the date of substantial performance as triggering the commencement of the term: the guidance notes say that the start date is the date from which the term runs.

- Starting rent including VAT and end date for starting rent. Is the later rent known (20)? If the lease is granted a week before the term begins, the starting rent will be nil if it is the rent payable when the lease is granted. The same will apply if there is an initial rent-free period, or, if there is a concessionary rent for the first six months, it will be that concessionary rent. The Revenue has confirmed that what is required here is the current rent and not the starting rent; the guidance notes are wrong, but the wording on the return (which makes clear that the current rent should be entered in Box 20) is correct.

- If VAT is included, what is the amount (21)? Presumably, this should refer to VAT as at the effective date (given paragraph 2 of Schedule 4)?
* Total premium paid (22). Issues on the net present value relate to the definition of ‘term’. The formula in paragraph 3 of Schedule 5 is to be applied by reference to rents payable in the first, second, third, etc. year of the term. There may be a conflict between the principle that the term of a lease cannot start before the date of execution of the lease (Cadogan v Guinness [1936] Ch 515) and the rule which has been repealed for stamp duty land tax purposes (paragraph 6 of Schedule 5), but which the Revenue says it will continue to apply. Where there is no agreement for lease, any rent paid before grant of the lease should be ignored on the grounds that the tenant is in occupation only on a licence; this the Revenue has confirmed. However, if there is an agreement for lease which is substantially performed before the lease is granted, the return then due should be based on the rents payable under the lease assuming that it will be completed on the agreed date. What happens if the effective date falls after the agreed completion date, but for some reason the lease has still not been completed? The agreement for lease may take effect as an equitable lease, in which case a return should presumably be made on the basis of that equitable lease. Once a legal lease is granted, that will itself be a chargeable transaction, with credit given for any stamp duty land tax paid on the equitable lease. Finally, why must the net present value calculation be performed on each occasion, e.g. in the case of ground rents on residential leases well below £2,000 a year? The net present value cannot exceed £60,000 if the rent does not exceed £2,000 a year, however long the term, on the basis of a temporal discount rate of 3.5 per cent.

- Net present value of the lease (23).
- Total stamp duty land tax due on the premium (24).
- Total stamp duty land tax due on the net present value (25).

The guidance notes should then be checked to see if supplementary sheet SDLT 4 ‘Additional details about the transaction, including leases’ should be completed. But the heading to this section is incorrect in implying that it refers only to the grant of new leases. The guidance notes state that Boxes 16 to 22 must be used to detail the sale of a lease or the sale of a freehold subject to a lease (and, presumably also, the sale of a leasehold subject to a lease): the lease will not be ‘new’ in such cases. Further, if the sale is subject to more than one subject lease, form SDLT 4 is to be completed for each subject lease. But form SDLT 4 requires completely different information from Boxes 16 to 22. It is not clear what information about each subject lease is required, and why. Furthermore, the purchaser of land subject to a lease will not know whether that lease is linked to another. Incidentally, even though a lease granted for less than seven years for a consideration which does not attract stamp duty land tax is not notifiable, the implication of the guidance notes is that, if the reversion to the lease is sold, the lease must then be notified as a subject lease. The Revenue has commented generally that the information required by Boxes 16 to 22, about leases to which a freehold is subject, is needed by the Valuation Office Agency. It has confirmed that if the freehold is subject to more than one lease, supplementary sheet(s) SDLT 4 should be used to give details of the other(s).

About the land

Where more than one piece of land is being sold (or there is not enough space in the form), the supplementary sheet ‘land transaction return - additional details about the land’ SDLT 3 should be completed. SDLT 3 requests various details of the land, including the type of property and whether any minerals or mineral rights are reserved. Form SDLT 1 asks for the number of properties included (26) and, if more than one, whether a certificate is wanted for each property (27). The form assumes that ‘land is being sold’. It is not clear but presumably in the case of transactions such as options, pre-emptions, variations, surrenders, releases, etc., a description is required of the land to which the transaction relates. Registration of the transfer depends upon having either a Revenue certificate or a self-certificate. There must then be given the address or situation of the land (28), the local authority number (29), the title number (30) and the NLPG unique property reference number (that is, the National Land and Property Gazetteer – or, in Northern Ireland, Pointer – unique property reference number) (31). The Revenue is to update the guidance notes on Box 31 (in relation to obtaining the unique property reference number) as soon as it can: see the Revenue notice issued on 28 November 2003. If the transaction is for agricultural or development land, the unit of measurement (hectares or square metres) must be given, together with the area: sadly, there is no room for acres (32). Although the implication might be that land used for other purposes, e.g. amenity or public open space, need not be detailed, the Revenue has said that the area of any land acquired without buildings must be given (again, information wanted by the Valuation Office Agency) and that the requirement follows stamp duty. Any plan attached is noted at 33: the form reference number must be written or displayed on the map.

Separate addresses

The Stamp Office considers that having a separate address makes a property separate for stamp duty land tax purposes (see Box 26 on page 14 of the guidance notes form SDLT 6). Accordingly, separate forms SDLT 3 are needed for each flat acquired in a block of eight and for each of three separate areas of agricultural land being acquired as part of home farm. However, on the acquisition of 250 freeholds, special arrangements might apply (so that completion of form SDLT 3 is unnecessary): the enquiry line should be contacted.

About the vendor (which includes transferor and lessor)

If there is more than one vendor, the details of the others must be given in Boxes 45 to 48. The details required are: the number of vendors (34), the title of an individual (35), surname or company name (36), first name(s) of an individual (37) and address (38). It is not clear whether it is the vendor’s old or new address which is to be provided, presumably the latter. In any case, is it in order to put ‘care of’ their solicitors? Private addresses of vendor trustees would not normally be divulged to a purchaser. The agent’s name (39), address (40), DX number (41), e-mail address (42), reference (43) and telephone number (44) are then requested. The guidance notes do not specify the nature of the agency: presumably as was the case with PD forms, it is the vendor’s agent in effecting the transaction, viz. (normally) the conveyancer. The Revenue has commented that, as with question 11 on the stamp duty Particulars Delivered form, ‘the transferor’s solicitor’ should be inserted. In any case, it is unclear why details of the vendor’s agent are required when it is the purchaser who is alone responsible for submitting the land taxation return.

Additional vendor

There is then space for one additional vendor’s details: title of an individual (45), surname or company name (46), first name(s) of an individual (47) and address (48). If there is more than one additional vendor, then supplementary sheet ‘land transaction return – additional vendor/purchaser details’ SDLT 2 must be completed.

Matthew Hutton MA, CTA (Fellow), AIIT, TEP and Sharon Anstey LLB (Hons), CTA (Associate), IAC are the authors of the Book Stamp Duty Land Tax available (in both electronic and printed form) by subscription on www.mckieandco.com or from This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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About The Author

Mark McLaughlin is TaxationWeb's Co-Founder, Director and Technical Editor. He is a Fellow of the Chartered Institute of Taxation and a member of the Association of Taxation Technicians and the Society of Trust and Estate Practitioners. He lectures on tax subjects, is co-author of Tottel's IHT Annual and Ray & McLaughlin's IHT Planning, and Editor of Tottel's Tax Planning and Annual series. Mark's work has also been published in Taxation, Tax Adviser, Tolley's Practical Tax, Tax Journal and Simon's Weekly Tax Intelligence.

Since January 1998, Mark has been a consultant in his own tax practice, Mark McLaughlin Associates, which provides tax consultancy and support services to professional firms. He publishes a regular 'Tax Update' e-Newsletter for clients and other professional firms. To receive future copies, contact Mark via his website.

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