Stamp duty land tax -background


    This publication is a summary of the main property taxes in England and Wales as of August 2020. It does not include coverage of property rates, nor inheritance issues, save in reference to government ideas published under a previous administration in the Finance Bill 2017 that have not been implemented, nor does it cover taxes relating to Scottish and Welsh land and property, which have their own regulations and taxation systems.


    Prior to the introduction of stamp duty land tax (SDLT) under the provisions set out in the Finance Act 2003 (FA 2003, ss 42–124, Schs 3–19), and which initially covered all property transactions in the United Kingdom, land sales and purchases were subject to stamp duty at 0.5% under the Stamp Act 1891 and required an instrument of transfer. SDLT has much broader scope than stamp duty, including reliefs and anti-avoidance rules. It has applied with effect from 1 December 2003, subject to initial transitional provisions and to partnership transactions involving land, which were in turn brought within SDLT as from 23 July 2004 (FA 2003, Sch 15).

    SDLT was replaced in Scotland by the land and buildings transaction tax (LBTT), with effect from 1 April 2015, and in Wales with land transaction tax (LTT), with effect from 1 April 2018. LBTT and LTT have similar but not identical rules to SDLT.

    The application of SDLT

    SDLT is charged on any acquisition of a chargeable interest. A chargeable interest is defined as being an estate, interest, right or power in or over land in England or Northern Ireland, or the benefit of an obligation, restriction or condition affecting the value of any such estate, interest, right or power (FA 2003, s 48). 'Acquisition' is also broadly defined and includes the creation of a chargeable interest, such as the grant, surrender and/or variation of a lease. The purchaser of the chargeable interest is responsible for paying the tax (FA 2003, s 85).

    Any consideration which is given in money or money's worth is called chargeable consideration (FA 2003, s 50, Sch 4). No discount is allowed where a payment is to be postponed. The acquisition of debt may count as chargeable consideration as can, in certain circumstances, services which are provided as consideration, resulting in the open market value of obtaining those services being included in the chargeable consideration.

    A number of payments are excluded from the definition of chargeable consideration, as follows:

    • The payment by a donee of IHT which arises on a gift of property to an individual (either because he or she is liable to the charge or because he or she agrees to pay it).
    • The payment by an individual of CGT on property which is gifted to him or her or passed to him or her under a bargain which is not at arm's length (either because he or she is liable to the charge or agrees to pay it). This exclusion does not apply if there is other chargeable consideration.
    • The payment by a tenant of his or her landlord's costs on the grant or enfranchisement of a lease. Where the chargeable consideration is in the form of an annuity payable for life, in perpetuity, for an indefinite period or for a period which exceeds 12 years, the amount is to be taken as a one-off payment equivalent to 12 years' annual payments (FA 2003, s 52). Where payments vary, the highest 12 payments will be used. No account will be taken of adjustments that are linked to the retail price index

    Any VAT due on the consideration is also included as chargeable consideration (Sch 4, para 2). On a transactional issue, where the vendor has the option to charge VAT but has not done so at the effective date of the transaction (completion or, if earlier, substantial performance), any VAT that becomes payable as a result of the purchaser exercising the option to tax at a later date will not be included as chargeable consideration. This would be relevant when a landlord has elected to tax after the tenant has acquired the lease, thereby applying VAT to the rent.

    In certain circumstances the chargeable consideration will be the deemed market value under FA 2003, s 53, which applies to transfers between a vendor, whether an individual or company, and a purchaser which is a connected company (CTA 2010, s 1122 providing the definition of being connected) and whereby some or all of the consideration for the transfer consists of the issue or transfer of shares in a company with which the vendor is connected. When s 53 applies, the exemption under Sch 3, para 1 for transactions where there is no chargeable consideration does not apply and the market value will be used instead. It may be the case that the transaction is not charged to SDLT if the conditions of a relief apply, which includes group relief.

    Because stamp duty arose on the execution of an instrument of transfer, requiring documentation, avoidance was possible in arrangements which involved resting on contract. The designers of SDLT were determined that such devices would not be effective under the new tax. SDLT can arise at every stage of a transaction, but with rules to prevent multiple charges under specific circumstances.

    Where a land transaction is entered into and is to be completed by conveyance, the entering into the contract is not in itself entering into a land transaction. The charge will normally arise when the property transaction in question is completed, though other scenarios are also possible (FA 2003, s 44) as follows:

    • In circumstances where a transaction is completed without previously having been substantially performed, the contract and the transaction effected on completion are treated as parts of a single land transaction and the effective date of the transaction is the date of completion.
    • If the contract is substantially performed without having been completed, the contract is treated as if it were itself the transaction provided for in the contract and the effective date will be when the contract has been substantially performed.

    The SDLT rules provide that where the whole or part of the chargeable consideration is contingent, the following procedures apply:

    • consideration is firstly calculated on the basis that the amount relating to the contingency is payable;
    • where the whole or part of the consideration is uncertain or unascertainable, the consideration is to be calculated on the basis of a reasonable estimate of the outcome (FA 2003, s 51);
    • where the whole or part of the chargeable consideration for a transaction is contingent, SDLT payable will initially be on the assumption that the outcome of the contingency will be effected but adjustable in the event contingency ceases or the consideration is ascertained; and
    • where the whole or part of the chargeable consideration is uncertain or unascertained, its amount or value shall be determined on the basis of a reasonable estimate.

    'Contingent' means that the consideration is to be paid or provided only if some uncertain future event occurs, or that it is to cease to be paid or provided if some uncertain future event occurs. 'Uncertain' means that the amount or value of the consideration depends on uncertain future events.

    However, the purchaser may apply to HMRC to defer payment of SDLT where the amount or value of chargeable consideration at the effective date is contingent or uncertain, and is payable on one or more future dates of which at least one falls, or may fall, more than six months after the effective date of the transaction (FA 2003, s 90).

    The procedure for making an SDLT return in these cases is as follows:

    • The original return contains the estimated consideration and SDLT is paid on the estimate.
    • Thereafter, when consideration has been ascertained, a further return is made containing details of actual consideration, with payment of the additional SDLT within 30 days of consideration having been ascertained or a claim for refund of overpayment.
    • If the estimate and actual consideration are below the notification threshold, no further action is needed.
    • If the estimate was below the notification threshold and the actual consideration is above that threshold, form SDLT1 must be filed, providing all relevant information, with the effective date for SDLT purposes being the date of the original transaction.

    Where the contingent or uncertain consideration is not due for at least six months after completion, subject to certain conditions it will be possible to apply for deferral of the corresponding liability to tax (FA 2003, s 90; SI 2003/2837, Part 4). Any application must be made within 30 days of the effective date of the transaction. The deferral provision does not apply to rent as consideration for a lease. Deferral is also not available in cases where the consideration is uncertain but ascertainable but it has not been ascertained on the grounds that the amount has to depend on uncertain future events (FA 2003, s 51(3)). In such cases, the land transaction return should be completed on the basis of a best estimate of the purchase price which will be payable. When the final consideration is known, a purchaser amendment should be made (FA 2003, Sch 10, para 6).

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