Learning Outcomes
After reading this article, you will be able to explain the operation of Stamp Duty Land Tax (SDLT) and Land Transaction Tax (LTT), identify key differences in their application to property transactions in England and Wales, perform basic calculations for SDLT and LTT including applying the correct rates and reliefs, and handle client issues regarding tax liability, particularly common exam scenarios for the SQE2.
SQE2 Syllabus
For SQE2, you are required to understand the application of property taxes to conveyancing transactions. Carefully review and revise:
- The scope and application of Stamp Duty Land Tax (SDLT) for properties in England.
- The scope and application of Land Transaction Tax (LTT) for properties in Wales.
- SDLT and LTT liability in residential and commercial transactions (including freehold and leasehold).
- Basic calculation of tax due, including relevant thresholds, rates, and surcharges.
- Key reliefs and exemptions, such as first-time buyers’ relief and additional property surcharges.
- Post-completion obligations: submission of tax returns and implications for registration.
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.
- A client is purchasing a residential property in Wales for £800,000 as their main home. Which tax is payable, and what would be the consequence of not submitting the tax return on time?
- What determines whether a property purchase is subject to SDLT or LTT, and who is responsible for payment?
- Is SDLT or LTT payable on the assignment of a lease, and if so, in what circumstances?
- When is the additional property surcharge applied, and to which transactions does it relate?
Introduction
Taxation is a critical component of property transactions. In England, Stamp Duty Land Tax (SDLT) applies to chargeable interests in land, whereas Wales operates Land Transaction Tax (LTT). Both taxes affect buyers of residential and commercial property and must be understood for the SQE2, particularly in relation to compliance, client advice, and post-completion tasks.
SDLT and LTT: Application and Scope
SDLT applies in England to chargeable land transactions. LTT replaced SDLT in Wales and applies to land transactions completed on or after 1 April 2018.
Key Term: Stamp Duty Land Tax (SDLT)
A tax paid by buyers on the acquisition of land or property in England. Applies to residential and commercial freeholds, leaseholds, and assignments above certain value thresholds.Key Term: Land Transaction Tax (LTT)
A tax paid by buyers on land and property acquisitions in Wales. Operates similarly to SDLT, but with distinct rates and reliefs.
A 'chargeable transaction' for either SDLT or LTT includes a sale, lease grant, or assignment where consideration exceeds the relevant threshold.
Residential and Commercial Transactions
SDLT and LTT both apply to residential and non-residential (commercial) property, but bands and rates differ. Always check the latest rates.
- Residential transactions: Houses, flats, and leasehold interests where the purchaser will occupy or let as a dwelling.
- Commercial transactions: Offices, shops, development land, and mixed-use properties.
Freehold and Leasehold
Key Term: chargeable consideration
The total value paid for the property (including money, goods, works, release of debt, or other forms of value).
SDLT and LTT are assessed on the chargeable consideration for freehold sales. For leaseholds, tax is charged on both any premium paid to acquire the lease, and (for longer leases) on the net present value of rent payable during the lease term.
Worked Example 1.1
Sanjay is buying a leasehold commercial unit in Manchester for a £100,000 premium and a 30-year term with annual rent of £10,000. How is SDLT assessed?
Answer:
SDLT is charged on the £100,000 premium, and separately on the net present value (NPV) of total rent due over the term, using the appropriate commercial property rates and calculator.
Rates and Calculation
Rates are set by central government for SDLT and by the Welsh Revenue Authority for LTT. Both use a progressive, banded system applied to slices of the price.
SDLT (England)
- Thresholds and rates vary. Current main residential rates (as of 2023):
- Up to £250,000: 0%
- £250,001-£925,000: 5%
- £925,001-£1.5m: 10%
- Over £1.5m: 12%
- First-time buyers may be eligible for special relief on properties under £625,000.
LTT (Wales)
- Residential and commercial rates differ from SDLT—check current bands. Main LTT residential bands (2023):
- Up to £225,000: 0%
- £225,001–£400,000: 6%
- £400,001–£750,000: 7.5%
- £750,001–£1.5m: 10%
- Over £1.5m: 12%
Key Term: surcharge
An additional 3% (SDLT) or 4% (LTT) on top of standard rates, payable by buyers of additional residential property (e.g., second homes, buy-to-lets).
Reliefs and Exemptions
Both SDLT and LTT offer reliefs in specific situations.
- First-time buyers’ relief (SDLT): Provides lower rates for qualifying purchases in England up to £625,000.
- Multiple dwellings relief: May reduce overall charge when purchasing more than one dwelling in a single transaction.
- Exempt transactions: Certain transactions are exempt, such as gifts (if no chargeable consideration), transfers on divorce, or some trust arrangements.
Worked Example 1.2
Lily is buying her only home in Cardiff for £270,000. Does she pay SDLT or LTT, and what reliefs apply?
Answer:
LTT applies because the property is in Wales. No first-time buyer relief exists for LTT, so Lily pays LTT at standard residential rates on the purchase price.
Additional Property Surcharges
A higher rate SDLT/LTT applies if a purchaser is buying an additional residential property worth over £40,000 and already owns another dwelling anywhere in the world. For individuals, the surcharge is 3% (England) or 4% (Wales) on the full purchase price in addition to standard rates. Companies and certain trusts acquiring residential property generally pay these higher rates automatically.
Exam Warning
SDLT and LTT have frequent rate/band changes and special rules for mixed-use, company, and non-resident purchasers. Always check the law and rates as at the date of transaction or examination.
Post-Completion: Payment and Compliance
Buyers (through their solicitors) must file a return and ensure payment of SDLT or LTT, usually within 14 days for SDLT or 30 days for LTT after completion. HM Land Registry will not register the new owner until the SDLT or LTT certificate is produced.
Late submission/late payment attracts financial penalties and interest.
Leasehold Transactions: Premium and Rent
For lease purchases:
- SDLT calculation: Charge on both any premium (price paid to acquire the lease) and net present value (NPV) of rent if the lease term exceeds 7 years.
- LTT calculation: Similar dual calculation for premium and NPV of rent.
Worked Example 1.3
Cassie is taking a 99-year lease of a flat in London, paying a £30,000 premium and £500 monthly rent. Is SDLT payable?
Answer:
SDLT applies to the £30,000 premium (using residential rates) and also, if the lease exceeds 7 years, to the calculated net present value of total rent (using separate bands).
Submission and Penalties
Failure to file the required return or pay within the deadlines results in daily interest and penalty charges. Registration of the transaction at the Land Registry will be barred without an SDLT5/LTT certificate.
Key Term: SDLT5 certificate
The official confirmation issued following payment of SDLT; required for registration of title.Key Term: LTT certificate
The official confirmation issued after LTT payment in Wales; must be submitted for registration.
Key Point Checklist
This article has covered the following key knowledge points:
- SDLT applies to chargeable property in England; LTT to property in Wales.
- SDLT and LTT are progressive (banded) taxes, paid by buyers on the purchase price (and, for leases, rent).
- Residential transactions attract different rates and reliefs from commercial ones.
- Buyers of additional dwellings may face a higher surcharge.
- The buyer or their solicitor must file and pay the tax within statutory deadlines to avoid penalties and to secure registration.
Key Terms and Concepts
- Stamp Duty Land Tax (SDLT)
- Land Transaction Tax (LTT)
- chargeable consideration
- surcharge
- SDLT5 certificate
- LTT certificate