How is Stamp Duty Land Tax calculated?

11th September 2018 by Tim Shaw

Stamp Duty Land Tax (“SDLT”) was introduced in 2003 and replaced stamp duty for land transactions.  SDLT potentially applies to any land transaction undertaken in England and SDLT arising on a transaction is paid by the acquirer of the land interest; similar taxes apply in Scotland and Wales but these are not considered further in this blog.  

SDLT is commonly charged on the following transactions:-

  • The acquisition of freehold land and buildings
  • The acquisition of a leasehold interest in land and buildings (this can include the grant of a lease)
  • The acquisition of certain rights over land
  • The transfer of a property interest which is subject to a mortgage

The marginal rate of SDLT arising on a land transaction varies between 0% and 15% of the consideration for residential property and between 0% and 5% of the consideration for commercial property.  The rate applying for residential property transactions depends upon various circumstances such as whether or not it is residential property which is acquired by companies or partnerships with corporate members or whether or not it is residential property acquired by individuals who already own another property elsewhere in the world.

SDLT is calculated on a stepped basis.   As an example, if freehold commercial land and buildings are purchased for £1,000,000 with no VAT chargeable, the SDLT arising will be £39,500 calculated as follows:-

   £
 £0 to £150,000 at 0%  0
 £150,001 to £250,000 at 2% 2,000
 £250,001 to £1,000,000 at 5% 37,500
 Total SDLT payable (effective rate 3.95%)           39,500

 

SDLT due on a property transaction is payable to HMRC within 30 days of the date of completion of the purchase and an SDLT return must be filed with HMRC by the same deadline.  Penalties can be charged by HMRC if SDLT is not paid on time or if the SDLT return is filed late.

It should be noted that, if VAT is charged on the sale of land and buildings, then subject to any reliefs or exemptions being available, SDLT is charged on the VAT inclusive amount.  In the example above, if the seller was required to charge VAT of £200,000 on the sale, so that the total consideration became £1,200,000, SDLT payable would increase to £49,500 (an effective rate of 4.95% of the pre-VAT consideration).  Even if the VAT charged was recoverable by the purchaser, the requirement to charge VAT would increase the SDLT that they must pay by £10,000.

For business purchasers, SDLT is not an allowable tax deduction when incurred.  Instead a future deduction may be available, for example when the land and buildings purchased are ultimately sold.  The possibility of a future deduction may therefore be remote at the time of the acquisition and it is quite possible that no deduction will ever be available when SDLT arises on a property lease.

The above is a very basic guide to a complex area of UK tax law.  Reliefs can be available for potential SDLT costs where, for example, properties are transferred within groups of companies or where multiple “dwellings” are purchased together.  Similarly, various exemptions can apply, for instance for properties obtained from wills or properties which have been gifted.  Such reliefs and exemptions are often subject to anti-avoidance legislation and their availability cannot be assumed – professional advice should always be taken before relying on any SDLT reliefs or exemptions.


Author

Tim Shaw

Tim Shaw

Associate Partner
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