Learning Outcomes
After reading this article, you will be able to explain the role of Stamp Duty Land Tax (SDLT) and Land Transaction Tax (LTT) in property transactions, identify when and how these taxes are calculated and paid, outline the post-completion steps required for compliance, and apply these principles to SQE1-style scenarios.
SQE1 Syllabus
For SQE1, you are required to understand the completion and post-completion steps relating to SDLT and LTT in property transactions. Focus your revision on:
- 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
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.
- What is the deadline for submitting an SDLT return and paying SDLT after completion of a property purchase in England?
- 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?
- True or false? SDLT is payable on the VAT-inclusive price if VAT is charged on a property transaction.
- 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.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.
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: consideration
The price paid for the property, including any VAT if applicable, used as the basis for calculating SDLT or LTT.
SDLT and LTT rates and thresholds change frequently. For SQE1, you do not need to memorise the exact rates, but you must know how to apply the correct rates to the relevant portions of the price and understand when higher rates or reliefs apply (e.g. for additional properties or first-time buyers).
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.
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 completion.
- LTT: Return and payment must be made within 30 calendar days of completion.
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.
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.
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.
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.
The calculation for leases can be complex. For SQE1, you should know that both the premium and the NPV of the rent may be taxable, and that the tax is paid and evidenced in the same way as for freehold purchases.
SDLT and LTT: Practical Steps for the Solicitor
The buyer’s solicitor is responsible for:
- Calculating the correct amount of SDLT or LTT (including any higher rates or reliefs).
- Submitting the land transaction return and paying the tax within the deadline.
- Obtaining the SDLT5 or LTT certificate.
- Including the certificate in the application to HM Land Registry.
- Advising the client of the consequences of late payment or non-compliance.
Key Term: penalty
A financial charge imposed for late submission of the return or late payment of SDLT or LTT.Key Term: interest
Additional sums charged on late payment of SDLT or LTT.
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.
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.
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 completion (SDLT) or LTT within 30 days (LTT).
- SDLT and LTT are calculated on the consideration, including VAT if applicable.
- 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.
- Penalties and interest apply for late filing or payment.
- The buyer’s solicitor is responsible for ensuring compliance with all post-completion steps.
Key Terms and Concepts
- Stamp Duty Land Tax (SDLT)
- Land Transaction Tax (LTT)
- consideration
- land transaction return
- completion
- effective date
- SDLT5 certificate
- LTT certificate
- registration gap
- net present value (NPV)
- penalty
- interest
