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Stamp duty land tax on rent

This content applies to England

Circumstances in which stamp duty land tax is payable on rents over a certain threshold.

In some circumstances, depending on the amount of rent payable over the life of a tenancy, a tenant may be liable to calculate and pay stamp duty land tax (SDLT).

Overview

SDLT is calculated on the 'net present value' (NVP) of the cumulative rent payable over the life of a tenancy that exceed a certain threshold (currently £125,000). SDLT on residential tenancies is currently charged at the rate of 1 per cent on amounts payable over and above the threshold. Different rates apply to non-residential and mixed-use tenancies.

Check on Gov.uk for up-to-date thresholds and rates.

The main provisions on SDLT are set out in Part 4 of the Finance Act 2003 and relevant Schedules.

Which tenancies are covered

Any type of tenancy, irrespective of the security of tenure, can potentially attract SDLT.[1]

Joint tenancies

Where one joint tenancy is granted to more tenants, all the tenants are 'jointly and severally' liable to pay SDLT, and must all sign the SDLT1 return (see below).[2]

Term of the tenancy

The start date of a tenancy is the later of:[3]

  • the commencement date as specified in the tenancy agreement
  • the date of the grant of the tenancy.

When calculating the term, no account is taken of:[4]

  • any break clauses, whether exercisable by the landlord, the tenant, or both
  • any right to renew, whether of the landlord, of the tenant, or of both
  • any forfeiture clause or other contingency as a result of which the tenancy may end early.

Additional returns (and possibly SDLT) will be due if occupation continues for more than a year.[5]

If the term of the tenancy cannot be ascertained at the time of the grant, it will be treated as a tenancy for an indefinite term.

Tenancies for an indefinite term

A tenancy for an indefinite term includes:[6]

  • periodic tenancies
  • other interests or rights terminable by notice
  • tenancies for life.

For SDLT purposes, a tenancy for an indefinite term is initially treated as if it were a notional tenancy for a deemed fixed term of one year. If it then continues after the first year, it is treated as a growing lease of a deemed fixed term of two years and so on. The SDLT position is initially based on a tenancy for one year. As the term of the tenancy grows, the SDLT position needs to be revisited and any additional SDLT paid and a further SDLT return submitted, both within 30 days of the end of the previous deemed fixed term.[7]

Calculating and paying SDLT

The tenant is responsible for calculating and paying SDLT annually by returning form SDLT1 to HM Revenue and Customs (HMRC), within 30 days of the start or renewal of the tenancy.

Full details of how SDLT on rents is calculated can be found in Schedule 5 of the Finance Act 2003.

Broadly speaking, SDLT is calculated on the 'net present value' (NVP) of the cumulative rent payable over the life of a tenancy that exceed a certain threshold (currently £125,000). A temporal discount rate (currently of 3.5 per cent) is applied to the rents payable in each year of the tenancy to reflect the fact that rents to be received in the future have a lower value than rents received today.[8] SDLT is then charged at the relevant rate (currently 1 per cent) on the amount over the applicable threshold.

HMRC helpline

Tenants can query any proposed SDLT charges by contacting the HMRC SDLT helpline by telephone on 0300 200 3510 (lines are open Monday to Friday, from 8.30am to 5.00pm) or by post at the following address:

BT - Stamp Duty Land Tax
HM Revenue and Customs
BX9 1HD
United Kingdom.

What counts as rent

SDLT is calculated on any consideration paid in respect of the tenancy.[9] That includes:

  • money and money’s worth paid directly or indirectly by the tenant or a connected person – for example rent in advance paid by a person on behalf of the tenant[10]
  • VAT payable under the tenancy
  • all-inclusive rent – ie sums expressed to be payable in respect of the rent although strictly related to other matters (for example, service charge, insurance, maintenance and repair) unless they have been apportioned expressly[11]
  • landlord’s agent’s fee payable by the tenant.

SDLT is not payable on sums paid separately to the landlord in respect of:[12]

  • repair, maintain, insurance or service charge
  • landlord's costs of management
  • landlord’s legal costs.

See What is rent for more information about what can count as rent.

Duty to keep records

Tenants must keep records relating to SDLT returns for six years, or for longer if there is an enquiry or if amended or further returns are made. Records can be retained electronically and must be passed on to assignees on assignment of the tenancy. Failure to keep records could result in a financial penalty.

The records to be kept include:[13]

  • the tenancy agreement
  • supporting maps, plans or similar documents
  • records of relevant payments, receipts and financial arrangements
  • records relating to rent increases.

Penalties and interests

Tenants may incur in a flat-rate penalty for late submission of a return, rising to the double if the return is more than three months late.[14] If a return is more than 12 months late, tenants may have to pay a tax-related penalty of up to the amount of tax due in addition to the flat-rate penalty.[15] Fraudulent tax evasion is a criminal offence.

Tenants may also be charged interest (currently at 2.75 per cent) on any unpaid SDLT. Interest runs from 30 days after the due date until the date of payment.[16]

Prior to 1 December 2003

Prior to 1 December 2003, responsibility for calculating and paying any stamp duty lied on the landlord, rather than the tenant. Tenancy agreements may have been subject to stamp duty, unless they were for seven years or less with an annual rent of £5,000 or less. If stamp duty was due, the agreement should have been sent to HMRC for stamping in order to be enforceable.

Details of the abolition of stamp duty and transitional arrangements can be found in Part 5 of the Finance Act 2003.

[1] s.48 Finance Act 2003.

[2] s.103 Finance Act 2003.

[3] Bradshaw v Pawley [1980] 1 WLR 10.

[4] para 2, Sch 17A, Finance Act 2003.

[5] para 4, Sch 17A, Finance Act 2003.

[6] para 4(5), Sch 17A, Finance Act 2003.

[7] para 4(1), Sch 17A, Finance Act 2003.

[8] para 8, Sch. 5, Finance Act 2003.

[9] s.77 Finance Act 2003.

[10] para 1, Sch. 4, Finance Act 2003.

[11] para 4, Schedule 4 and para 6, Schedule 17A, Finance Act 2003.

[12] para 10(1), Schedule 17A, Finance Act 2003.

[13] para 9(3), Sch 10, Finance Act 2003.

[14] para 3, Sch 10, Finance Act 2003.

[15] para 4, Sch 10, Finance Act 2003.

[16] s.87(1) Finance Act 2003.

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