SDLT is a tax on land transactions in England and Northern Ireland and has been with us for over 16 years – it replaced “stamp duty” which was a tax on documents. Scotland and Wales have their own land tax regimes. Some of the rules are extremely complex and even the Revenue have been known to get their guidance wrong.
A tax return and payment of the tax due on the “chargeable consideration” has to be filed/paid within 14 days of the effective date. The “effective date” is usually completion, but beware – if the contract is substantially performed earlier, such as a buyer going into possession of the property, the “effective date” will be triggered immediately. Penalties and interest will accrue for late filing and payment of tax.
- If a relief is available, it should be claimed in the tax return. Amendments can be made if this has not been done – but only for 12 months from the filing date, which is 14 days after the “effective date”.
- Contrast this timing with the HMRC power to raise a “discovery assessment” for up to 4 years after the filing date and, in the case of fraud, for up to 20 years afterwards.
- Beware of apportioning the price with chattels. The Revenue will not accept a separate price for fixtures. The sum ascribed to any fittings must be a realistic and true (i.e. second hand) value. Trying to get large sums through for threadbare carpets and curtains is not going to work. To be safe, have an inventory and give proper (not inflated) values.
- Payment of any agent’s commission by purchasers is deemed to be part of the chargeable consideration. If you are a keen auction goer, it is imperative that the contract and legal pack is read. For example: A person bought a house at auction for £450,000. The buyer had not read the pack or contract. The auction contract included a term that the buyer pay the 10% commission, plus VAT to the auctioneer. Not only did it cost that buyer an extra £54,000 on top of the bid, but it resulted in tax being due on £504,000, not £450,000.
- In considering this story – if the buyer had been a first time buyer – the buyer would have lost their ability to claim First Time Buyer Relief (FTB), which is only available where the consideration is under £500,000. FTB tax on a price of £450,000 is £7,500, whereas standard rate tax on £504,000 is £15,200.00. A very costly mistake all round.
- Debt. Imagine two cohabiting parties A and B. They separate and A buys out B. If A also assumes liability for the entire mortgage debt (which is common), the amount of debt that B is released from is also “chargeable consideration” for the purposes of calculating the SDLT.
- Some consideration might be contingent or uncertain i.e. dependent on an event occurring (such as planning permission being granted). SDLT must be paid on these elements as if all consideration were payable at the effective date.