Introduction
This article will be useful to anyone buying or leasing property, land of any description and additionally, shares in companies. It explains the three taxes involved in the above transactions, who must pay and how to pay.
What is Stamp Duty?
Stamp duty is chargeable in respect of;
Transactions involving the transfer of land;
Transactions involving the transfer of interests in land;
Grants or assignments of leases;
Transfers of chargeable securities, such as, shares in companies.
Stamp duty is calculated on the amount paid, or cash value if paid otherwise than in cash, on the transfer.
Stamp duty is paid by the purchaser or the tenant.
There are two distinct types of stamp duty for most businesses:
Stamp Duty Land Tax (SDLT), and
Stamp Duty Reserve Tax (SDRT)
SDLT may be due if you buy or lease premises and is an additional cost to take into account when acquiring both business and private premises.
SDRT may be due on the purchase of shares and securities.
What is SDLT?
SDLT replaced stamp duty on purchases of houses, flats and other UK land and buildings and certain leases as from 1 December 2003. In many ways it is similar to stamp duty but there are some differences.
Under SDLT, it is no longer necessary to send documents in for stamping. Instead, you are required to sign a new form called "the land transaction returns" or SDLT-1. You can download a sample of the land transaction return and land transaction guidance notes in PDF form from the HM Revenue & Customs website.
Who must pay SDLT?
The buyer or the tenant is responsible for paying the SDLT. Upon receipt of a completed return and payment of SDLT, HM Revenue & Customs will issue a certificate. This certificate must be sent to the appropriate land registry (previously the "stamped" documents had to be submitted).
Buying land or premises
If you buy a property you will need to pay SDLT. For non-residential property the zero rate band is £150,000. For residential property the zero rate band applies to properties with a purchase value up to and including £120,000.
You would have previously paid 1% for any purchases up to £250,000 in SD. The zero rate band means that any transaction up to the value of £150,000 on a non-residential property, incurs no stamp duty land tax!
Disadvantaged areas relief
Some properties in certain qualifying areas may qualify for "disadvantaged areas relief". Disadvantaged areas relief provides for an exemption from stamp duty for property located in qualifying areas on residential transactions where the consideration does not exceed £150,000.
After 16 March 2005, disadvantaged areas relief no longer applies for non-residential land transactions.
Lease of land or premises
SDLT applies to the grant of a lease where the chargeable consideration for the transaction consists of or includes rents. Net Lawman has an article for stamp duty and leases which you can find at the end of this article. http://www.netlawman.co.uk/info/stamp-duty-on-leases.php .
When should the transaction be notified?
All grants of leases for a term of seven years or more must be notified to HM Revenue & Customs on a land transaction return. However, leases for less than seven years need not be notified unless there is a charge to tax (on either the premium or rental element or both) at 1 per cent or more, ignoring the availability of any relief.
Assignments of leases must be notified even if tax is charged at 0 per cent.
How to calculate the amount chargeable to SDLT
You must look separately at the rent and any consideration other than rent (the most common example of which is a premium). The SDLT on the premium is calculated in the same way as if it was the purchase price paid for a freehold property.
How to notify HM Revenue & Customs and pay SDLT?
You must complete a land transaction return (SDLT1) and additionally you may need to complete a supplementary return (SDLT4).
The completed return is due by the filing date, 30 days after the effective date of the transaction together with the payment of SDLT.
Penalties may apply if you do not submit land transaction returns on time.
What is Stamp Duty Reserve Tax (SDRT)?
SDRT is the stamp duty or tax on purchases / transfers of shares. The tax is charged at 0.5 per cent on the amount for the transfer. The purpose of introducing the tax was to cover paperless share transactions on agreements.
SDRT is collected primarily on share transactions that are not drawn up via a Stock Transfer form (paperless transactions) and therefore not falling within the usual stamp duty regulations.
If there is no consideration in monetary value, there is usually no SDRT charge.
SDRT is payable on any agreement to transfer shares. The charge is cancelled if a transfer document is produced and stamped. This prevents a double charge! If it is exempt from stamp duty it will also be exempt from SDRT unless there is a specific provision to the contrary, as there is in some cases.
When do I have to pay SDRT?
You must pay SDRT when you purchase:
Shares in UK companies;
Shares in foreign companies with a register in the UK;
Interests in shares;
Rights arising out of shares;
Options to acquire shares, and units in most unit trusts.
Securities which are exempt from stamp duties, such as gilts and loan capital, are exempt from SDRT. There are also exemptions for charities and for certain transactions in the financial markets.
There is a special higher rate SDRT charge of 1.5 per cent in relation to the issue or transfer of securities into depository receipt schemes and clearance services. The responsibility for paying SDRT to HM Revenue & Customs rests with the "accountable person". This is usually the broker acting for the purchaser of the shares.
Net Lawman advice
Since the technical rules on SDLT are complex, Net Lawman advises you seek professional help before entering into lease or purchase of land.
If by chance you find some error of law or fact in any Net Lawman information page, do please tell us. We should also welcome your suggestions for new subjects for information pages. These notes:
Do not provide a complete or authoritative statement of the law;
Do not constitute legal advice by Net Lawman;
Do not create a contractual relationship;
Do not form part of any other advice, whether paid or free.
