Calculating land tax

Stamp Duty Land Tax (SDLT) was introduced in 2003 as a self-assessed tax on land transactions.  It replaced stamp duty which was a tax on deeds, usually payable by a property buyer when a deed was required to evidence transfer of title. SDLT has not proved to be a popular tax, operating as it does in an arbitrary and sometimes unfair way. Yet, even in a quiet property market, SDLT still raises in excess of £5 billion each year for the government coffers.

SDLT is payable in slabs: at the rate of 1% of the purchase price above £125,000 (or £150,000 for commercial properties), at 3% above £250,000 and at 4% above £500,000. A new 5% rate has been introduced for residential properties bought for more than £1 million. This effectively penalises buyers in the more expensive areas of London and the south-east.

There are special incentives for first time buyers, who must prove that they have never owned residential property anywhere in the UK or abroad and who (until 24 March 2012) can buy a house or flat up to £250,000 without incurring any SDLT.

The slab thresholds are arbitrary. It is important when negotiating to buy a property to be aware of the SDLT rates. Buying property at £250,000 will incur SDLT of £2,500 whereas at £260,000 the SDLT charge jumps up to £7,800. One way to mitigate this increase is to look at the actual (not replacement) value of fixtures and fittings which are not subject to SDLT provided they are capable of being removed from the property and are not genuinely part of the structure. Carpets and curtains can be removed. Boilers, hobs and agas are more likely to be part of the structure.

In relation to commercial property transactions, it is important to establish whether VAT is to be charged on the purchase price.  If it is, SDLT is payable on not just the purchase price but the amount of any VAT as well. Most regard this as unfair; in effect a tax on tax.

SDLT is also payable on relatively short leases where rent is paid to the landlord.  Calculating the stamp duty on these can be quite confusing, small changes to the term or the rent paid during a negotiation can result in a charge to stamp duty where previously none would have been payable.

The HMRC website contains a lot of helpful information about SDLT. It can be difficult to navigate but in particular there are SDLT calculators for freehold and leasehold purchases which (if used correctly) give a clear idea of the SDLT to be paid for a particular freehold or leasehold purchase.

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