Taxation in the United Kingdom/Stamp taxes/Stamp duty land tax

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Stamp duty land tax (SDLT) is a new tax in land transactions that was introduced by Finance Act 2003 and largely replaces stamp duty with effect from 1 December, 2003. SDLT is not a stamp duty, but a form of self-assessed transfer tax. SDLT is charged on "land transactions" and for typical transactions in land, such as the buying and selling of a residential house, there is little change from stamp duty, except that a tax return is required to be made to the Inland Revenue and documents no longer need to be given a physical stamp. Like any other self-assessed tax, but unlike stamp duty, the Inland Revenue is able to enquire into an SDLT return and raise assessments to recover unpaid SDLT.

For residential house purchases, the current rates in the UK are as follows:

Consideration Rate
up to £125,000 0%
over £125,000 to £250,000 1%
over £250,000 to £500,000 3%
over £500,000 4%

SDLT is not a progressive tax, but rather works on a "slab" basis, so the above percentages apply to the whole of the purchase price. For example, a house priced at £250,000 would attract a SDLT of £2,500, but one of £250,001 would be liable to SDLT of £7,500. Some areas have been designated as disadvantaged areas and have relief from SDLT on residential transactions below a certain level.

In previous years, there had been a high level of house price inflation in the UK but no change in these thresholds, leading to a substantial increase in the revenue from SDLT through fiscal drag. In 2000-01, the Inland Revenue received £2.145bn from residential stamp duty. In 2002-03, it received £3.59bn.[1]

In 2005, the threshold for paying SDLT was raised from £60,000 to £120,000. In 2006, the threshold was further raised to £125,000.

In addition to SDLT on the purchase price for land, SDLT is also charged when a lease is granted. Any premium for the grant is charged to SDLT at the same rates as for the purchase price for a sale of land; SDLT is also charged on the rent payable under the lease, at the rate of 1% of the (discounted) net present value of rent passing under the whole term of the lease. Previously, stamp duty was charged at rate of up to 24% of the annual rent. The amount of SDLT due on the grant of a typical commercial lease generally amounts to a substantial increase from the amount of stamp duty that would have been due previously.

SDLT is also charged on certain transactions involving the transfer of land involving partnerships (transfers of land from or to the partners, or changes in the partners' partnership interests where the partnership owns land).

Whether or not tax is payable Her Majesty's Customs and Revenue require a Return to be received by them within four weeks of the transaction completing failing which they have power to levy a fine on the tax payer - the fine is not for failure to pay the tax but for failure to make the return. When a return is accepted by HMRC they provide a Certificate without which it is impossible to register a change in the land ownership.