Completion and post-completion steps - Payment of Stamp Duty...

Learning Outcomes

This article explains the role of Stamp Duty Land Tax (SDLT) and Land Transaction Tax (LTT) in property transactions, identifies when and how these taxes are calculated and paid, outlines the post-completion steps required for compliance, and discusses SQE1-style scenarios that illustrate these principles.

SQE1 Syllabus

For SQE1, you are required to understand the completion and post-completion steps relating to SDLT and LTT in property transactions, with a focus on the following syllabus points:

• the calculation and payment of SDLT (England) and LTT (Wales) on freehold and leasehold transactions
• deadlines for filing returns and paying tax
• the consequences of non-compliance
• the relationship between SDLT/LTT and registration at HM Land Registry
• the solicitor’s duties in ensuring post-completion compliance
• the concept of the effective date and substantial performance, and how this can accelerate filing/payment obligations
• how VAT affects the consideration for SDLT/LTT
• differences between SDLT and LTT reliefs and higher/special rates (first-time buyer relief in England, higher rates for additional residential properties, non-UK resident surcharges under SDLT)
• linked transactions and six-or-more dwellings rule (impact on rates)
• lease calculations on both premium and rent (NPV) and typical pitfalls

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the deadline for submitting an SDLT return and paying SDLT after completion of a property purchase in England?
2. Which document must be obtained from HMRC or the Welsh Revenue Authority before an application to register a transfer at HM Land Registry can be made?
3. True or false? SDLT is payable on the VAT-inclusive price if VAT is charged on a property transaction.
4. What are the main differences between SDLT and LTT regarding deadlines and rates?

Introduction

Completion of a property transaction triggers important tax obligations for the buyer. In England, Stamp Duty Land Tax (SDLT) applies; in Wales, Land Transaction Tax (LTT) is charged. These taxes must be calculated, paid, and evidenced before the buyer’s title can be registered. Failure to comply with these requirements can result in penalties and prevent registration of the buyer’s ownership. This article explains the key steps, deadlines, and practical considerations for SDLT and LTT at and after completion.

SDLT and LTT: Overview

When a property is purchased, the buyer is responsible for paying SDLT (in England) or LTT (in Wales) if the price exceeds the relevant threshold. The tax is calculated on the consideration paid, including any VAT if applicable.

Key Term: Stamp Duty Land Tax (SDLT)
SDLT is a progressive tax payable by buyers of land or property in England (and Northern Ireland), based on the purchase price and property type. It is charged on money or money’s worth (for example, cash, assumption of debt, or issue of shares) and applies to most transfers, grants of leases, and certain variations.

Key Term: Land Transaction Tax (LTT)
LTT is the equivalent tax to SDLT, payable by buyers of land or property in Wales, with its own rates and thresholds. It is also progressive and applies to freehold and leasehold transactions.

Key Term: consideration
The price paid for the property, including any VAT if applicable, used as the basis for calculating SDLT or LTT. It includes money or money’s worth (for example, shares), and certain transactions are charged on market value (for instance, some transfers to connected companies).

Some transactions are outside the charge or are exempt (for example, transfers on divorce/dissolution, or property acquired by inheritance). Even where no tax is payable, many transactions still require a return.

SDLT and LTT: Calculation and Rates

SDLT and LTT are both calculated using tiered rates. The amount of tax due depends on the property’s value, type (residential or non-residential), and the buyer’s circumstances (e.g. first-time buyer, company, or additional property).

Key Term: chattels
Movable items such as carpets, curtains, and freestanding white goods. These do not form part of the land and can be apportioned separately from the property price for SDLT/LTT purposes, but any apportionment must reflect genuine market value.

SDLT and LTT rates and thresholds change from time to time. Know how to apply the correct rates to the relevant portions of the price and when higher rates or reliefs apply (e.g. additional homes, first-time buyers under SDLT only, or non-UK resident surcharges under SDLT). For SDLT, a purchase of six or more residential properties in one transaction is generally charged at non-residential rates.

Worked Example 1.1

A buyer purchases a freehold house in England for £400,000. The first £250,000 is taxed at 0%, and the next £150,000 at 5%. What is the SDLT due?

Answer:
£0 on the first £250,000; £7,500 (5% of £150,000) on the remainder. Total SDLT due: £7,500.

Worked Example 1.2

A buyer purchases a residential property in Wales for £350,000. The first £225,000 is taxed at 0%, and the next £125,000 at 6%. What is the LTT due?

Answer:
£0 on the first £225,000; £7,500 (6% of £125,000) on the remainder. Total LTT due: £7,500.

Reliefs and higher rates:

• SDLT first-time buyer relief (England): generally no SDLT up to £425,000 and 5% on the portion from £425,001 to £625,000, with no relief over £625,000.
• Higher rates for additional residential properties: SDLT and LTT charge surcharges (SDLT usually +3%; LTT has its own higher rate bands).
• SDLT non-UK resident surcharge: +2% on top of the relevant rate(s). Wales does not apply a non-UK resident surcharge.
• Company purchases of high-value residential property may attract a special 15% SDLT rate in some circumstances (separate from ATED rules).

Key Term: linked transactions
Multiple purchases or transfers between the same buyer and seller (or connected parties), which are treated as one transaction for SDLT/LTT. The combined consideration determines the rate bands applied.

SDLT and LTT: When and How to Pay

The buyer’s solicitor must submit a land transaction return and pay the tax within a strict deadline after completion.

Key Term: land transaction return
The form submitted to HMRC (for SDLT) or the Welsh Revenue Authority (for LTT) reporting the details of the transaction and calculating the tax due.

• SDLT: Return and payment must be made within 14 calendar days of the effective date.
• LTT: Return and payment must be made within 30 calendar days of the effective date.

Key Term: completion
The date when the purchase price is paid, the transfer is executed, and the buyer becomes entitled to the property.

Key Term: effective date
The date the transaction is completed or substantially performed (usually the completion date), which triggers the SDLT/LTT deadline.

Key Term: substantial performance
Where the buyer takes possession, receives rents or profits, or pays substantially all of the consideration (commonly 90% or more), the transaction is treated as effective (chargeable and reportable) at that earlier point. This can accelerate filing/payment obligations ahead of legal completion.

Returns are typically submitted online, and payments are made electronically. A submitted return may be amended within statutory time limits. Refunds (for example, of the SDLT higher rates where a previous main home is sold within 36 months) must be claimed within the relevant time window. For LTT, refund rules follow Welsh legislation and guidance.

After payment, the buyer’s solicitor receives a certificate (SDLT5 or LTT certificate) as proof of compliance.

Key Term: SDLT5 certificate
The certificate issued by HMRC confirming that the SDLT return has been filed and any tax due has been paid.

Key Term: LTT certificate
The certificate issued by the Welsh Revenue Authority confirming that the LTT return has been filed and any tax due has been paid.

Key Term: penalty
A financial charge imposed for late submission of the return or late payment of SDLT or LTT. Penalties may be fixed and/or tax-geared depending on delay.

Key Term: interest
Additional sums charged on late payment of SDLT or LTT, typically accruing from the effective date until payment.

Worked Example 1.3

A buyer completes a purchase in England but fails to file the SDLT return for 21 days. What are the consequences?

Answer:
The buyer will incur a penalty for late filing and may also be charged interest on any unpaid tax. Registration at HM Land Registry will be delayed until the SDLT5 certificate is obtained.

Worked Example 1.4

Contracts are exchanged for a commercial unit in England at £500,000 plus VAT. The buyer takes possession to start fit-out before completion and pays 90% of the price on access. When is SDLT due?

Answer:
SDLT becomes reportable and payable within 14 calendar days of substantial performance. Taking possession and paying 90% prior to completion makes the effective date the date of substantial performance, not legal completion.

SDLT and LTT: Registration at HM Land Registry

An application to register the buyer’s ownership at HM Land Registry cannot be made without evidence that SDLT or LTT has been paid (or that a return has been filed, even if no tax is due).

Key Term: registration gap
The period between completion and registration of the buyer’s title at HM Land Registry.

The SDLT5 or LTT certificate must be submitted with the application to register the transfer. If the certificate is missing, the application will be rejected. Ensure the AP1 (registered land) or FR1 (first registration) is lodged within the relevant priority period (for registered titles) or two months (for first registration of unregistered titles). If the buyer is a company, remember the separate 21-day deadline to register any company charge at Companies House; evidence of that registration often accompanies the Land Registry application.

SDLT and LTT: Leasehold Transactions

SDLT and LTT apply to both freehold and leasehold transactions. For leases, tax may be payable on both the premium (lump sum) and the net present value (NPV) of the rent.

Key Term: net present value (NPV)
The total value of rent payable over the term of a lease, discounted to present-day value, used to calculate SDLT or LTT on leases.

For SDLT on residential leases, the NPV element is generally charged at 1% on the amount above the threshold (and at higher bands for non-residential leases). For LTT, the NPV bands and rates differ. The rent calculation frequently causes errors; confirm the NPV in the return system and retain the calculation outputs on file. The tax is paid and evidenced in the same way as for freehold purchases.

Worked Example 1.5

A tenant takes a new commercial lease in England with a £100,000 premium and an NPV of rent of £300,000. How is SDLT calculated?

Answer:
SDLT is due on the £100,000 premium at non-residential rates and on the NPV of rent: 1% applies to the NPV within the relevant band (and 2% above £5,000,000). The total SDLT is the sum of SDLT on the premium plus the SDLT on the rent NPV.

SDLT and LTT: VAT and Property

VAT affects SDLT/LTT because both taxes are calculated on the VAT-inclusive consideration. Commercial property may be standard-rated (for example, sale of a “new” commercial building within three years of construction), and an option to tax can make otherwise exempt supplies taxable.

Key Term: option to tax
An election by a property owner to charge VAT on a supply of land/buildings which would otherwise be exempt. Once VAT is chargeable, SDLT/LTT is calculated on the VAT-inclusive price.

Always check whether VAT will be charged on the price (sale or lease). If VAT is chargeable, the SDLT/LTT computation must use the VAT-inclusive amount. Misidentifying the VAT status is a common source of SDLT/LTT underpayment.

Worked Example 1.6

A buyer acquires an “old” commercial building in England for £250,000. The seller has opted to tax, so VAT is charged (20%). What is the SDLT basis of charge?

Answer:
SDLT is computed on the VAT-inclusive consideration: £250,000 + £50,000 VAT = £300,000. Apply non-residential SDLT rates to £300,000 (0% up to £150,000; 2% on £150,001–£250,000; 5% on the amount above £250,000).

SDLT and LTT: Practical Steps for the Solicitor

The buyer’s solicitor is responsible for:

1. Calculating the correct amount of SDLT or LTT (including any higher rates or reliefs).
2. Checking VAT status, any option to tax, and whether chattels are apportioned at fair market values.
3. Identifying linked transactions and whether the six-or-more dwellings rule applies to SDLT.
4. Confirming the effective date and whether substantial performance occurs prior to completion.
5. Submitting the land transaction return and paying the tax within the deadline.
6. Obtaining the SDLT5 or LTT certificate.
7. Including the certificate in the application to HM Land Registry.
8. Diarising the Companies House 21-day deadline for registration of any company charge and enclosing evidence in the Land Registry application when required.
9. Advising the client of the consequences of late payment or non-compliance and the process for claiming refunds or amendments within statutory windows.

Worked Example 1.7

A buyer in England purchases a second home for £400,000. No VAT applies. What additional SDLT is payable?

Answer:
The higher rates for additional residential properties generally add 3% to the main SDLT rates. Compute main rates (0% on first £250,000; 5% on £150,000 = £7,500) then add the surcharge: 3% on £400,000 = £12,000. The total SDLT is £7,500 + £12,000 = £19,500.

SDLT and LTT: Common Pitfalls

• Failing to include VAT in the consideration if VAT is chargeable—SDLT/LTT is calculated on the VAT-inclusive price.
• Missing the deadline for filing the return or paying the tax.
• Attempting to register the transfer without the SDLT5 or LTT certificate.
• Incorrectly claiming reliefs or applying the wrong rates (e.g. claiming SDLT first-time buyer relief for a Welsh property, or ignoring the non-UK resident surcharge).
• Misidentifying the effective date where substantial performance occurs before completion.
• Ignoring linked transactions or the impact of purchasing six or more dwellings.
• Apportioning excessive amounts to chattels—must reflect fair market values; otherwise, HMRC/WRA may challenge the apportionment.
• Treating property transfers to connected companies as if there were no charge—market value rules may apply even without cash consideration.

Exam Warning

If SDLT or LTT is not paid (or the return is not filed) within the deadline, the buyer may be unable to register their title and will be liable for penalties and interest. Always check the current deadlines and requirements.

Key Point Checklist

This article has covered the following key knowledge points:

• SDLT applies to property transactions in England; LTT applies in Wales.
• The buyer must submit a land transaction return and pay SDLT within 14 days of the effective date (SDLT) or LTT within 30 days (LTT).
• SDLT and LTT are calculated on the consideration, including VAT if applicable.
• Substantial performance can make the effective date earlier than legal completion and accelerate filing/payment obligations.
• The SDLT5 or LTT certificate is required for registration at HM Land Registry.
• SDLT and LTT apply to both freehold and leasehold transactions, including rent on leases (NPV of rent in addition to any premium).
• Additional residential property and non-UK resident surcharges may apply; SDLT first-time buyer relief applies in England, but not in Wales.
• Linked transactions and purchases of six or more dwellings can affect rates (e.g. SDLT non-residential rates).
• Penalties and interest apply for late filing or payment.
• VAT on the price increases the SDLT/LTT base; check any option to tax.
• The buyer’s solicitor is responsible for ensuring compliance with all post-completion steps and evidence for Land Registry, and for diarising the Companies House charge registration where relevant.

Key Terms and Concepts

• Stamp Duty Land Tax (SDLT)
• Land Transaction Tax (LTT)
• consideration
• land transaction return
• completion
• effective date
• substantial performance
• SDLT5 certificate
• LTT certificate
• registration gap
• net present value (NPV)
• penalty
• interest
• chattels
• linked transactions
• option to tax