Please note that this section is intended as information only and should not be relied up as advice. You should seek independent professional advice if you have any concerns regarding SDLT.
What is SDLT and how is it calculated?
From December 2003 residential tenancies have the potential to be liable for Stamp Duty Land Tax (SDLT). The SDLT threshold was raised in March 2005 to £120,000 and in March 2006 to £125,000. SDLT is a tax levied on tenancy transactions, paid by Tenants and is calculated on the amount of gross rent for the term of the tenancy less a pre-set discount (Temporal Discount Rate) (currently 3.5%). This computation produces an amount known as the Net Present Value (NPV). From 17 March 2006 if the Net Present Value (NPV) is less than £125,000, no Stamp Duty Land Tax is payable. If the NPV is greater than £125,000, Stamp Duty Land Tax is calculated as 1% of the difference between the NPV and £125,000. E.g. If the NPV is £128,000 the SDLT to be paid is 1% of the difference between the NPV figure and £125,000, ie 1% of £3,000 which is £30. These are example numbers and vary from time to time. You are advised to take legal advice on what your liabilities for SDLT may be.
How does “term of the tenancy” affect SDLT?
SDLT is calculated across the total time a Tenant takes a tenancy for, up to a maximum of seven years. If a tenant takes a one year tenancy and exercises an option to renew for a further year, this will be considered by the Inland Revenue to be a linked transaction and the NPV calculation will be based on the gross rent paid for both years. The SDLT will be recalculated at he start of the second year, taking the rent and SDLT paid for the first year into consideration. If the Tenant takes a tenancy for one year, and continues to occupy the property at the end of that term on a monthly basis, the Inland Revenue will presume that this is also a linked transaction and will calculate the SDLT on the presumption that the Tenant will spend another full year in the property. The NPV calculation will be for the full two years.
Who pays SDLT?
SDLT is paid by the Tenant. When SDLT is due the Tenant must complete and submit a declaration form SDLT1 to the Inland Revenue within 30 Days of the date the tenancy commences or the date the lease was executed, whichever is the earlier.
Will SDLT be refunded if the tenant terminates early?
There are penalties for late submissions. Once SDLT has been paid there will be no refund for early termination for whatever reason.
Correct at time of publication. The views and opinions expressed herein are those of the individual contributor and do not necessarily reflect those of the Chancellors Group of Estate Agents Ltd or its subsidiaries. References to legislation, best practice and other matters with legal implications such as fees, rules and processes are included for information and editorial purposes only and are not authoritative, nor should they be interpreted as advice. When in doubt you should only take advice from an industry professional or solicitor where appropriate. E&OE.