Read the original guidance here:
HMRC SDLT: SDLTM18420 – Calculation of stamp duty land tax: Lease premium: Relevant rental figure: Example 1

Understanding Stamp Duty Land Tax (SDLT)

Stamp Duty Land Tax (SDLT) is a tax charged on properties purchased in England and Northern Ireland. This article will explain key concepts related to SDLT and provide examples to clarify how it works.

What is SDLT?

SDLT is a tax payable when you buy a property or land over a certain price. The amount you need to pay depends on the property’s value. It is generally calculated on a tiered basis, meaning different portions of the property’s price are taxed at different rates.

When is SDLT Payable?

You must pay SDLT if you are purchasing:

• A leasehold property
• A freehold property
• Land that comes with planning permission
• Mixed-use properties

There are exemptions, and the most significant one is for properties bought below a certain threshold. As of the latest guidelines, you do not pay SDLT on property purchases under £125,000.

Calculating SDLT

The calculation of SDLT is based on the purchase price of the property. The SDLT rates vary depending on the price band of the property. Here’s a breakdown of the current rates:

• Up to £125,000: 0%
• £125,001 to £250,000: 2%
• £250,001 to £925,000: 5%
• £925,001 to £1.5 million: 10%
• Over £1.5 million: 12%

For example, if you purchase a property for £300,000, SDLT is calculated as follows:

• First £125,000: 0% = £0
• Next £125,000 (from £125,001 to £250,000): 2% = £2,500
• Remaining £50,000 (from £250,001 to £300,000): 5% = £2,500

The total SDLT payable would be: £0 + £2,500 + £2,500 = £5,000.

Calculating SDLT on Lease Premium

If you are purchasing a leasehold property, you might pay SDLT based on the premium of the lease and the rent. The principal consideration for SDLT in these cases is the ‘relevant rental figure’. The relevant rental figure is the annual rent charged under your lease agreement.

It is important to understand how the relevant rental figure is viewed in the SDLT calculations:

• If the lease premium is above the threshold but the annual rent is low, you may end up paying a significantly low SDLT.
• If you pay a high premium for a low rent, you could also face a lower SDLT liability.

For example, suppose you pay a one-time £100,000 lease premium and the annual rent is £5,000:

• The lease premium is taxed:
  • Up to £125,000: 0% = £0
  • From £100,001 to £125,000: 0% which is the same as before. Total for premium = £0.
• The annual rent is also considered for SDLT:
  • The annual rent of £5,000 is charged over 15 years (the usual lease length), making £75,000 in total.
  • £75,000 fits into the 0% band, meaning no SDLT applicable on the rent either.

Thus, SDLT is £0 in this case because both the premium and the annual rent fall under the tax-free limits.

Key Principles to Remember

• SDLT is calculated based on the purchase price or premium of the transaction.
• The applicable rate may change if the price rises above the threshold for that band.
• Filing a return and paying SDLT must be done within a specified time frame, usually within 14 days after the completion of the purchase.
• Always keep records of the purchase and any calculations for your own reference and potential HMRC queries.

Exemptions and Reliefs

There are certain exemptions and reliefs available that may reduce your SDLT costs. Some common forms of relief include:

• First-time buyers relief: If you are a first-time buyer purchasing your first home, you could be eligible for a relief that allows you to pay no SDLT on homes costing up to £300,000. If the purchase price is between £300,000 and £500,000, you will benefit from a reduced rate.
• Multiple dwellings relief: If you are purchasing multiple properties in a single transaction, you may qualify for relief on the combined purchase price, which can result in a lower overall SDLT charge.
• Property transfers between spouse or civil partners: In certain circumstances, transferring property between spouses or civil partners can be exempt from SDLT.

It is essential to check eligibility for these reliefs and exemptions before finalising your purchase. You can find detailed information about specific reliefs on the HMRC page.

Special Cases – Transfer of Assets

Sometimes properties are transferred without a cash payment, such as gifts or transfers for no consideration. Even though there is no monetary exchange, SDLT may still apply based on the market value of the property at the time of transfer.

Here are some examples:

• If you transfer a property worth £200,000 as a gift, you will need to pay SDLT based on that value even though no cash changes hands. In this case, the SDLT charge would be calculated as:
• First £125,000: 0% = £0
• Next £75,000: 2% = £1,500
• Therefore, even though it is a gift, the £1,500 SDLT is due.

Moving Forward

Once you have calculated the SDLT and if any relief applies, you are required to file an SDLT return. This involves:

• Providing details of the purchase
• Calculating the SDLT due
• Paying the SDLT amount

It is essential to ensure this return is completed on time to avoid penalties or interest charges. Remember that paying and filing after the deadline can result in additional fees.

Resources for Further Information

If you need more guidance on specific situations or exemptions related to SDLT, you can refer to:

• The HMRC Stamp Duty guidance pages, where you can find detailed examples and rules.
• Online calculators that provide quick estimates of your possible SDLT liability based on your property’s value.

Remember to have your property details at hand to accurately assess potential SDLT obligations. You can also