Stamp Duty Land Tax

Stamp Duty Land Tax

Until a couple of years ago, all land transactions were taxed on a marvelously simple, time-tested and efficient basis-stamp duty. When a sale of land was completed, the relevant deed was sent to the Stamp Office, who endorsed a pretty red stamp on it, which was evidence that the proper duty had been paid, and sent it back to the buyer’s lawyer. What could be easier?

Well, a Mr Gordon Brown decided that the old system was not reflecting the reality behind every land transaction and that leases in particular were not bearing the proper level of taxation. Consequently, we now have a regime which bases tax on the transaction itself, not the completion document-stamp duty land tax.

Furthermore, the buyer is required to make a personal tax return on the transaction, just like the income tax return one has to make each year and with similar penalties for late or untrue returns. There is, for instance, an automatic penalty of £100 if the return is not sent to the Revenue within 30 days of ‘the effective date’, which is usually on completion, but may be earlier if, for instance, full access to the property has been given to the buyer.

And it’s no good pretending the transaction hasn’t happened, because the Land Registry will not register your ownership of the property without receiving evidence from the Revenue that the SDLT has been paid. Most land transactions require the return to be made even if no tax is payable.

The forms used by the Revenue are daunting and demand full details of the transaction. The basic one called SDLT1 has several supplements to it and if there are any errors, there is automatic rejection of the application. Added to that there have been significant teething troubles with the Revenue’s computer system, so that it is not surprising that most people prefer their lawyers to complete the return on their behalf.

The most complex area of all is with leasehold sales. In most cases, subject to the usual exemptions, tax is payable on a combination of premium plus rent x length of lease, with an allowance for accelerated payment. This really is an area to be left to your professional advisers. The general rule is: be prompt, be open and if in doubt ask your lawyer.