Guide to Landlords Stamp Duty Land Tax (SDLT)
Everyone knows that a purchase of property involves various outgoings. If the price exceeds a certain figure, there is a tax. It is payable to HM Revenue & Customs. Failure to obtain the required SDLT Certificate makes the transaction unregistrable at HM Land Registry. There are of course other forms of landlord tax payable. The SDLT changes were announced as part of George Osbornes Autumn Statement in 2015.
SDLT is NOT Stamp Duty!
The problem is that not everyone understands how the system works. These notes are an attempt to explain a little more about it.
First, the most common error made by Journalists and Estate Agents is to use the expression “Stamp Duty”. That is not correct at all!
Stamp Duty does exist. It applies chiefly to any transaction involving the purchase of stocks/shares/investment securities. The rate is 0.5% on the purchase price. This has remained unchanged for decades.
Stamp Duty used to apply to the purchase of a property as well. However, that has not been true for over a decade – and the system is now quite different.
When does SDLT apply?
What does apply is Stamp Duty Land Tax. This is quite different. Its rules and rates are quite different as well.
When first introduced SDLT was on a fixed scale applicable to every purchase in just the same way. HM Government has subsequently made it extremely complicated – even for solicitors! – so that there are now in effect at least four different SDLT regimes. They are as follows:
1. SDLT on the purchase of an only or main home (including a home replacing one’s previous home).
2. SDLT on a second home, investment property (residential) or one’s only or main home being purchased without the sale of one’s previous only or main home.
3. Non-residential or mixed-use property.
4. New lease of property.
The Government has very helpfully produced this SDLT calculator to help landlords calculate their SDLT tax bill.
The different ‘types’ of SDLT
For convenience, these will be described as type 1, type 2, type 3 and type 4 – although those expressions are not used in any statutory material. There is also a “type 5” but it is an annual tax (unlike SDLT, which is a one-off tax) and type 5 is really something different, called “ATED” (Annual Tax on Enveloped Dwellings). These notes therefore disregard type 5.
SDLT is payable as follows:
If the price does not exceed £125,000: 0%
If the price does exceed £125,000 but does not exceed £250,000:
0% on the first £125,000, and 2% on the excess.
If the price does exceed £250,000 but does not exceed £925,000:
0% on the first £125,000, 2% on the next £125,000, and 5% on the excess.
If the price does exceed £925,000, but does not exceed £1.5 million:
0% on the first £125,000, 2% on the next £125,000, 5% on the next £675,000, and 10% on the excess.
If the price exceeds £1.5 million:
0% on the first £125,000, 2% on the next £125,000, 5% on the next £675,000, 10% on the next £575,000, and 12% on the excess.
The rates are similar to those in type 1 but increased by three percentage points in every case (so the rates are 3%/5%/8%/13%/15% respectively).
The rates have quite a different scale.
Because type 3 relates to a non-residential or mixed-use property, it is possible that the price carries VAT. These notes do not explain in what circumstances that arises.
If the price does carry VAT, the grossed-up price is the purchase price for purposes of calculating SDLT.
If the price does not exceed £150,000: 0%.
If the price does exceed £150,000 but does not exceed £250,000: 0% on the first £150,000 and 2% on the excess.
If the price does exceed £250,000: 0% on the first £150,000, 2% on the next £100,000, and 5% on the excess.
This involves a complicated calculation of “Net Present Value” (NPV). It is a way of assessing the current lump-sum value of the rent which the lease reserves.
Do not try to work-out the NPV other than by using the online calculation tool at http://www.hmrc.gov.uk/sdlt/calculate/leasehold.htm-5
SDLT on rent has to be calculated separately from the SDLT on the purchase price (which, for a lease, is called “the Premium”).
4A. If the NPV does not exceed £125,000 (residential) or £150,000 (non-residential or mixed): 0%.
4B. If the NPV does exceed that type 4A figure but does not exceed £5 million: 0% up to the type 4A figure and 1% on the excess.
4C. If the NPV exceeds £5 million: 0% up to the type 4A figure, 1% on the next part of the type 4A figure up to £5 million, and 2% on the excess.
This guidance was provided by Jeffrey Shaw of Nether Edge Law.
For more details on conveyancing and leasehold matters you can post a question in our landlord forum or contact him directly on:
Telephone: 0114-268 7638 or 0845-108 0109
Fax: 0114-268 7638 or 0845-108 6405