Author: Nick Wood
Nick Wood, Associate, Fladgate LLP (firstname.lastname@example.org)
Stamp Duty Land Tax (SDLT) has had a colourful history since it was introduced by the Finance Act 2003 as a replacement for stamp duty on land transactions.
As property prices have increased, thresholds and rates have been discussed and adjusted regularly. SDLT reform has formed a key part of autumn statements, budgets and campaign promises. The most recent change to SDLT on residential property, the additional rate payable on second homes, generated huge attention when it was announced in 2015 and implemented in 2016.
However, SDLT has played a diminishing role in the last few years. 2015 saw its demise in Scotland in favour of a “Land and Buildings Transaction Tax”. 2018 saw its demise in Wales in favour of a “Land Transaction Tax”. It therefore only remains a feature of land transactions in England and Northern Ireland.
Despite its receding influence, SDLT is back in the spotlight once again. This time though, it is as a result of a relatively minor change. From 1 March 2019, the period allowed in England and Northern Ireland for filing an SDLT return and paying the tax reduces from 30 to 14 days.
Failure to meet this new accelerated 14 day deadline may result in interest and penalties.
The fixed rate penalty for filing a late return is £100. If the return is not delivered within three months, the penalty increases to £200. If the SDLT return is more than a year late then a tax-based penalty could be imposed up to the full amount of SDLT due for the transaction.
Interest will also be charged if the tax is paid late. HMRC uses the official rate of interest set by HM Treasury to work out how much interest you will have to pay.
This new deadline is unlikely to ruffle residential conveyancers for whom it is common practice for the SDLT return to be prepared and the SDLT funds to be collected in advance of completion.
However, commercial conveyancers may need to update their practice. The preparation of the SDLT return and the collection of SDLT monies from clients may no longer be treated as “post-completion” matters if conveyancers and their clients are to meet this new tighter deadline.
This will be particularly important where the client is a large commercial organisation that requires a number of internal approvals before funds can be transferred and / or where the “effective date” triggering the countdown for the return to be submitted and payment to be made occurs before completion. The latter typically occurs where occupation of premises is taken under an agreement for sale or lease before completion, although it can happen wherever “substantial performance” of a transaction occurs. This includes the situation where a substantial proportion of the consideration payable under a sale contract is paid before completion and the exchange of an option agreement.
It is further worth noting the following two matters. First, Land and Buildings Transaction Tax (in Scotland) and Land Transaction Tax (in Wales) still only require returns and payments to be submitted and made respectively within 30 days. Second, the situation may not be straightforward if your transaction straddles the 1 March 2019 deadline. Specialist advice should be sought in such situations, although it is worth noting here that a transaction that completes after 1 March 2019 may still be subject to the 30 day deadline if the “effective date” described above is before 1 March 2019. Further, where an SDLT return is filed before 1 March 2019 and a further return by letter is required after 1 March 2019, the 30 day filing period will continue in respect of that further return. This would include where a “contingent” payment becomes due, an “uncertain” payment becomes fixed and where SDLT relief is withdrawn.
In short, the consequence of the shortened window to submit SDLT returns and make SDLT payments is a need to be more prepared and organised when it comes to this aspect of land transactions.
Preparing the returns and ensuring sufficient funds are set aside and transferred to your conveyancer well in advance of completion of your land transaction would be a sensible place to start.
Clear and full communication with your conveyancer if you intend to “perform” any aspect of the land transaction before completion would also help ensure penalties and interest are avoided.