Over the last few years, there have a number of changes to the stamp duty land tax (SDLT) regime, which have aimed to modernise and reform it.
SDLT applies in England if you buy or take a lease of commercial property over £150,000 or residential property over £125,000, unless an exemption applies to the transaction. Stamp duty does not apply in Scotland or Wales, which have a different property tax regime.
As part of those changes to SDLT, the time allowed for payment has just been cut drastically.
Under new rules which came into force on March 1, a completed SDLT return has to be made within 14 days of the ‘effective date’ of the purchase of land and property within England.
A return has to be made for any freehold transaction with a value of more than £40,000. This applies even if the transaction is valued at under £125,000 and no tax is owed.
Under the old regime, buyers had 30 days to complete an SDLT return.
The 14-day countdown usually starts on the date the transfer is completed. But the effective date can also be before completion, on the day the contract is ‘substantially performed’.
This means the effective date could be when:
• the majority of the cost is paid
• the purchaser is entitled to possession of the property
• the initial rent payment has been completed
The buyer is responsible for making sure the payment is made and SDLT is a self-assessed tax. However, because a certificate confirming submission of the SDLT return is needed to register a property at HM Land Registry, most people will instruct their solicitor to make the SDLT return.
There are a number of situations where no SDLT return is needed. These are:
• transactions where no payment was made
• property that has been inherited
• property which changes hands because of divorce or the end of a civil partnership
• freehold transactions with a chargeable consideration of less than £40,000
• leasehold transactions where the lease is less than seven years, as long as the chargeable consideration is less than the residential or non-residential SDLT threshold
• leasehold transactions where the lease is seven years or more, provided the premium is less than £40,000 and the annual rent is less than £1,000
SDLT returns are usually submitted electronically using the forms available via the government website.
If the deadline is missed, an automatic fixed penalty is charged of £100 if the return is up to three months late. This becomes £200 if the return is more than three months late.
If filing is a year or more overdue, a tax-based penalty which could be the full amount of the tax due will be applied.
The 30-day limit still applies when further returns need to be filed and for applications to defer payment of SDLT for contingent or uncertain consideration.
When introducing this change, HRMC billed it as ‘improving the efficiency of the SDLT system’ and reducing the compliance burden on all concerned.
But the new 14-day deadline caused some concern among conveyancers and property lawyers who feared that they wouldn’t be able to complete SDLT returns in time for more complex transactions where purchases are subject to leases.
In order to meet this new, tighter turnaround time, SDLT calculations and draft returns should be made ready as early as possible so they can be filed promptly after the effective date has passed. It would also be useful to have multiple signatories for documents to prevent hold ups if someone is on holiday at a crucial stage in the process.
Of course, there have been more significant SDLT changes in recent years, such as the abolition of stamp duty for first-time buyers purchasing properties worth up to £300,000 and the imposition of the 3% SDLT surcharge on properties bought in addition to the buyer’s main home.
As an interesting aside, a recent court case found that uninhabitable properties should not be liable for the surcharge on second homes.
A tax tribunal in Bristol found in favour of a couple who bought a derelict bungalow in Weston-super-Mare, demolished it and built a new home in its place. They contested an attempt by HMRC to make them pay the second home surcharge on the bungalow.
The decision could lead to homebuyers who have paid the second home surcharge on uninhabitable properties claiming back overpayment of SDLT. The exact sum is unknown but it is estimated that millions of pounds could be due back from the taxman.
In another reform, the government has also just announced a consultation on a 1% increase to SDLT for non-UK resident buyers purchasing residential property in England and Northern Ireland.
All these attempts to reform and modernise SDLT do raise the question of whether this approach to taxing the housing market is fit for purpose in the first place.
The surcharge on second homes has proved controversial and, along with Brexit uncertainty causing the housing market to stall, has been blamed for a fall in SDLT revenues.
Some say that stamp duty help for first-time buyers is not the only help needed as first-time buyers are still left facing high house prices and the need for substantial deposits.
Others believe that SDLT, and in particular the additional homes surcharge, is a drag on the property market, making it more expensive and influencing people’s decisions to move home.
High rates of SDLT have also been criticised for hampering labour mobility and discouraging people from relocating across the country for work.
The current system is highly criticised and serious consideration should be given to simplifying it or abolishing it in favour of a new property tax regime. Suggestions have included a seller’s tax or the application of capital gains tax.
Whatever new regime is developed, change is required if we want our housing market to prosper.
*Jonathon Waterhouse is a Senior Associate and commercial property solicitor at national law firm Stephensons