In cases where it is proposed that you purchase or lease property, the transaction may give rise to a liability to pay Stamp Duty Land Tax (“SDLT”) or at least a liability to file an SDLT Return (a “Return”). If appropriate, we will send to you the relevant forms which are to be completed with the details of the nature of the transaction and stating the amount of SDLT due. At this stage, however, it is extremely important that you are aware of the following:-
- It is important that you seek appropriate financial advice at the outset upon the financial implications (in particular taxation issues) which may arise. We may be able to advise on simple matters but cannot do so where there are complex or unusual arrangements or circumstances. For example, an apportionment may be made in respect of the purchase price in which case you will need to take financial advice and then inform us how that apportionment is to be structured. It is also important to inform us if you intend to claim any relief in respect of the SDLT payment.
- We will complete the Return on your behalf, on the basis of the information provided to us for the purposes of the transaction, prior to sending it to you for checking and signing.
- When the Return is sent to you, you must be satisfied that the information contained within it is complete, true and accurate and therefore you must read through it carefully.
- If there is any other information which applies to the transaction of which we have not been advised, you must let us know as soon as possible as this may need to be taken into consideration before the Return is signed.
- SDLT is calculated having regard to different factors and the liability can sometimes depend on other transactions that you or persons related or connected to you have entered into in the past. As mentioned above, it is important that you let us have all relevant information that may affect the SDLT calculation – you are ultimately responsible for the contents of the Return.
- You must let us know if you are purchasing an additional residential property (i.e. where at the end of the day of purchase, individual purchasers own two or more residential properties and are not replacing their main residence) as a result of which higher rates of SDLT will be payable on the transaction. In this regard, please refer to the table and guidance in the Schedule to this Information Sheet.
- Even though the Return is completed on your behalf, you are still responsible for the information provided and it is you who has the obligation to notify the liability to tax. Consequences for failing to provide a correct return can include penalties of up to 100% of any understated tax alongside other sanctions.
- Once you are happy with the Return, you will be required to confirm that the details are correct by signing the Return and returning it to us, together with the payment (if any) representing the SDLT due in relation to the transaction. The signed Return must be returned together with the payment (in cleared funds) prior to the date of completion.
- We will not complete the transaction if we do not hold the signed Return and cleared funds. Not only will this enable the Return to be filed at HM Revenue & Customs within the required 30 days of the “effective date” of the transaction, it is a requirement of any mortgagee.
- The effective date of a land transaction will usually be the date upon which the land interest is acquired – i.e. completion of the purchase/lease. However, in some circumstances SDLT may be payable prior to the date of completion. For instance, SDLT becomes payable if the contract has been “substantially performed” as in the following examples:
- the purchaser (or a person connected with the purchaser) takes possession of the whole or substantially the whole of the property. Please note that this covers the event when a purchaser receives, or becomes entitled to receive rent. If the purchaser is in physical possession, it is immaterial whether he takes possession under the contract, a Licence or a Lease of a temporary character.
- a substantial amount of the consideration is paid or provided.
- In the event that the Return and payment are not sent to HM Revenue & Customs within the required period, a penalty fee of £100 will be incurred if the Return and payment are delivered within three months after the relevant filing date, and £200 in any other case, regardless of whether any tax is payable. In addition, a tax related penalty will be due if there is a failure to file the Return 12 months after the relevant filing date (which can be a sum up to the amount of the SDLT due). Further, interest will be charged on late payments both in respect of the SDLT liability and any penalties due.
- As stated above, it is important to emphasise that we will have completed the Return in reliance on the information received and that you have ultimate responsibility for the accuracy of the information. If the Return is not properly completed this may lead to delays in the acceptance of the Return and the incursion of a Late Return Penalty.
- It is important to note that any delay in the submission and/or acceptance of the Return will lead to delays in completion and in the receipt of a Land Transaction Return Certificate. This Certificate is an essential document to enable the purchase/lease to be registered at the Land Registry and therefore any failure to provide information, complete and/or sign the Return etc. will have serious consequences. This would affect a situation where we are also acting for a mortgagee as we would be required to inform the lender of the failure by you to co-operate which could ultimately lead to a conflict of interests and we would be unable to continue to act.
- We remind you again that it is your responsibility to pay the tax due. If there is more than one purchaser, this duty to pay tax is joint and several (i.e. you are both responsible for payment and if one of you failed to pay their share, then the other would have to pay all of the tax due), even if the reality of the situation is that the funds for the purchase are provided by one party.
- When we complete the Return on your behalf, we will give our details as the “tax agent”. For the purposes of SDLT, the tax agent is a person who is advising you in relation to the transaction and with whom HM Revenue & Customs can correspond about the tax payer’s tax affairs. By signing the Return, which includes our details as agent, you are giving us irrevocable authority to file the Return and are consenting to HM Revenue & Customs communicating with us and thereby enabling HM Revenue & Customs to comply with data protection requirements. Please note, however, that we are only your tax agent for this particular transaction and not in respect of any further Return or other information which may need to be supplied to HM Revenue & Customs (together with any additional payments) following completion of this transaction. Any subsequent Return, action or payment that may need to be made or carried out will be your responsibility.
- HM Revenue & Customs operates under a “process now, check later” system and accordingly you must be aware that you may be liable to pay any shortfall from the self-assessed amount after any enquiry. In addition, there may be occasions when the SDLT has been overpaid. In either case, it is likely that we would be informed of any shortfall or over-payment and if so, we would notify you of the same.
- As mentioned above, HM Revenue & Customs may make an enquiry into the transaction and of the enquiry window (usually nine months after the filing date although you should also be aware that HM Revenue & Customs are able to re-open and look into the Return at any time in the following 21 years). In practice such enquiries during the first nine months will be dealt with by us but it is important to forewarn you of this possibility at an early stage, particularly given that any costs arising in connection with responding to the enquiry are likely to be over and above those incurred in dealing with the transaction. In the event that you choose to handle such an enquiry personally, it is likely you will need to have access to the relevant documents/records and procedures for obtaining such documents/records are contained within our Terms of Business. It may be possible to obtain insurance cover in relation to any enquiries that may be raised and should you wish us to look into this further, please let us know.
- It is important that you keep the relevant documents in connection with the transaction for a minimum period of six years, although in certain circumstances we may hold such documents and in this respect we refer you to our Terms of Business.
- In the case of a lease transaction, it is important to be aware that if there is a change in rent within the first five years following the “effective date” (as referred to above), for example, a rent review, an additional Return may need to be submitted together with a further SDLT payment. Further, additional Returns and liabilities may arise in the event that you stay in the property after the expiry of the term of the Lease. As stated above, any additional Return or payment which is required will be your responsibility and accordingly please be aware of the same. Again, we recommend you seek appropriate financial advice. A failure to comply with these obligations could result in penalties being incurred.
We appreciate that there is a lot of information contained in this Information Sheet but it is important that you are aware of matters from the outset. Should you have any queries in respect of the above or in relation to the documentation, please contact us or access a copy of the Guidance Notes in relation to SDLT and the completion of the Return using the website: www.gov.uk/stamp-duty-land-tax.
Purchase of Additional Residential Property – Higher Rates of SDLT
From 1 April 2016, new rules came into force in respect of the payment of higher rates of SDLT on the purchase of additional residential properties in England, Wales and Northern Ireland. The higher rates (which are to be 3 percentage points above the current SDLT rates) will apply to most purchases of additional residential properties where at the end of the day of purchase, individual purchasers own two or more residential properties and are not replacing their main residence.
The higher rates of SDLT will also generally be payable on first purchases of residential property by companies and collective investment vehicles. In addition, higher rates will be payable by partnerships and on purchases by trustees where beneficiaries have no interest in possession.
There are only limited exceptions to the payment of the higher rates – principally only permitted where “significant investments” in residential property are being made which “significantly contribute” towards new housing supplies (for example, multiple dwellings relief).
For individuals, below is a table* which can be used to determine whether you will be liable to pay the higher SDLT rates on the purchase of additional residential properties. Please read and work your way through this carefully and let us know if you believe you will be liable for higher rates of SDLT:
Points to note:
- It is not possible to elect which property is to be treated as a main residence (e.g. as per the CGT regime) but instead will be a question of fact in each particular case;
- Married couples and civil partners can only own one residential property between them before the SDLT higher rates apply on purchases of additional residential property, whereas this does not appear to apply to unmarried couples in situations where one person solely owns a property and the other person then purchases a property.
Please refer to HM Revenue & Customs “Stamp Duty Land Tax: higher rates for purchases of additional residential properties” Guidance Note 16 March 2016 available at: https://www.gov.uk/government/publications/stamp-duty-land-tax-higher-rates-for-purchases-of-additional-residential-properties