What is Stamp Duty Land Tax (SDLT)?

SDLT is a charge imposed on land transactions of which are payable to HM Revenue and Customs (HMRC). A land transaction within England must be completed and submitted to HMRC within 14 days of completion. The form contains important information that HMRC will use to determine the amount of SDLT that is payable. The form must be completed in nearly all transactions, even if the return provides for a nil balance.

Who is liable for paying SDLT?

Presently, anyone who purchases land for a value of over £40,000.00 is required to submit a land transaction return to HMRC within 14 days of completion of the effective date of the transaction at hand. If the purchaser is not an individual, there are separate rules that will apply. If purchasers of a property are acting jointly, then they are jointly and severally liable for any premium due to HMRC, although, either party is able to individually discharge the fee payable.
Certain reliefs can be claimed, depending on the individual or company’s circumstances, which can reduce the SDLT premium that is payable.
First time buyers have additional exemptions. Multiple Dwellings Relief was available until 1 June 2024, when it was abolished by the government.

What happens if I fail to pay my SDLT liability?

HMRC have a penalty system in place. This is enforced when a return has not been submitted, or the return is submitted late. HMRC require an accurate land transaction return to be submitted to them within 14 days of completion (in England, as Wales have different rules) otherwise, there are automatic penalties that will be imposed. Interest is also payable. HMRC are able to impose further penalties if there are continued delays. If a return is not provided within 12 months of completion, you could find yourself in a position where you are required to pay double the tax that was initially due.

New Build Shared Ownership

When you purchase a new build property through the approved shared ownership scheme, you have two options available for you to consider when it comes to SDLT:
Option 1: Market Value Election – you pay your SDLT liability on the full market value of the property.
Option 2: Paying in stages – you pay your SDLT liability on the share you will be acquiring, along with the net present value of the rent, under the Lease. The net present value is defined as “the value in the present of a sum of money, in contracts to some future value it will have when it has been invested at compound interest” by Oxford Languages.

When you elect to pay your SDLT on the market value, this means that there is no requirement for you to pay further instalments when you staircase your property. This is because you have chosen to pay Stamp Duty Land Tax on the overall value of the property at the time of purchase. If you choose this option, it is imperative that this is reflected within your Lease. The reason for this is so that when you come to staircase, the acting solicitor can clearly see there is no further liability due from you. The way this is evidenced is that the Lease will make reference to the Finance Act 2004. The full wording can be found within Homes England’s Capital Funding Guide in the Model Lease.

Paying SDLT on the market value of the property is usually quite a popular option for first time buyers as it allows them to maximise their first time buyer’s relief. This is because once you have purchased the property, even if it is the only one you have owed, you do not get to extend the use of the relief. It is only applicable on the first transaction. It is important to note that in line with today’s SDLT rules, you are unable to utilise first time buyer’s relief if the full market value of the property exceeds £600,000.00.

If you instead elect to pay your SDLT in stages, whilst this can work out cheaper initially, there is a possibility that you could be liable for further payments in the future. This could potentially be more expensive than what would be due from you upon the day of completion of the purchase of your property. Unfortunately, there is no way for future liability to be predicted on the basis it will depend on the value of the property at the time staircasing takes place, and what SDLT rules are in place at such time.

It is also worth noting that further SDLT payments will not trigger until you reach 80% staircasing, so there may be a requirement to “backdate” payments for any interim staircasing transactions that have taken place. This is a particularly popular option with those purchasing a second home (please be reminded you are not permitted to own more than one property at the same time on the scheme so any previous property must be disposed (sold) prior to completion of the purchase of a shared ownership purchase). It is also a popular choice for those who have no intention to staircase the property during their period of ownership. Again, it is extremely important to ensure the relevant provisions are included within your Lease.

Existing Shared Ownership Properties

Unfortunately, the options available when you are purchasing a new build property, do not extend to existing shared ownership properties. This is because you are acquiring a lease of which has already been granted, which is being transferred to you by the existing property owner.

As a result, this means that SDLT will be treated as if the property were a “normal” transaction. You will not get to elect how you pay your Stamp Duty Land Tax and you will only have the option to pay on the share being acquired. It is however worth noting that in some instances, depending o the lease provisions, if the first owner of the property elected to pay SDLT on the full market value of the property upon their initial acquisition, if you staircase to 100% ownership at a later stage, you may be able to claim their SDLT exemption. This means that whilst a return may still need to be submitted to HMRC, you will not be liable to pay them any further sums. This is only something that can be determined once your conveyancer has had sight of the Lease to ascertain the provisions and your position.

It is important to remember that Stamp Duty Land Tax is a personal tax. Whilst we will prepare the return, this is based upon the information you provide us with. The onus is on you to provide correct and accurate information to HMRC. As a firm of solicitors, we are unable to provide you with any tax advice. If you are in any doubt as to your SDLT liability, it is imperative that you liaise with your accountant or tax advisor before proceeding.

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