Taxation in property - Stamp Duty Land Tax and Land Transact...

Learning Outcomes

This article covers:

• Application, calculation, reliefs, and compliance aspects of Stamp Duty Land Tax (SDLT) and Land Transaction Tax (LTT) for freehold and leasehold property
• When SDLT and LTT apply to sales, lease grants, and assignments, and how premiums and rent (NPV) are charged on leases
• Classification of residential, non‑residential, and mixed‑use property and application of rates, higher rates for additional dwellings (3% England; 4% Wales), the SDLT non‑UK resident 2% surcharge, and the corporate 15% rate
• Key reliefs and exemptions: first‑time buyer relief (England), replacement of a main residence rules, and how VAT feeds into the SDLT/LTT base
• Calculating tax on common scenarios (freeholds, lease grants, assignments), linked transactions, and VAT‑inclusive consideration
• Identifying when further or amended returns are required (e.g., lease variations treated as surrender and re‑grant)
• Post‑completion obligations, filing/payment deadlines (14 days for SDLT; 30 days for LTT), penalties/interest for late filing, and the link to registration (SDLT5/WRA certificate)
• Advising on typical client queries about filing, refunds (e.g., SDLT higher‑rates refund), and responding to Land Registry requisitions

SQE2 Syllabus

For SQE2, you are required to understand the application of Stamp Duty Land Tax (SDLT) and Land Transaction Tax (LTT) to property transactions, with a focus on the following syllabus points:

• 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, grant of lease, assignment of lease, and mixed‑use).
• Basic calculation of tax due, including relevant thresholds, rates, surcharges and the effect of VAT on the chargeable consideration.
• Key reliefs and exemptions, such as first-time buyers’ relief (England), replacement of a main residence, and higher rates for additional dwellings.
• Post-completion obligations: effective date, submission of returns, penalties/interest, and the linkage to registration (SDLT5/WRA certificate).

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. 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?
2. What determines whether a property purchase is subject to SDLT or LTT, and who is responsible for payment?
3. Is SDLT or LTT payable on the assignment of a lease, and if so, in what circumstances?
4. 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.

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.

Key Term: chargeable transaction
Any land transaction that is not exempt and that involves a chargeable interest (for example, the acquisition of a freehold or a lease). The effective date is generally completion, but can be brought forward by substantial performance.

Key Term: chargeable consideration
The total value given for the property, including money, assumption of debt, VAT (if applicable), works or services provided in lieu of cash, and any other money’s worth. Fair value must be used where chattels are separately priced.

Key Term: mixed-use property
Property that comprises both residential and non-residential elements (for example, a shop with a flat above). Non-residential/mixed-use rates apply to the whole of such transactions.

Key Term: linked transactions
Two or more land transactions that form part of a single scheme or arrangement between the same buyer and seller (or connected persons), requiring aggregation of consideration for rate purposes.

Key Term: net present value (NPV)
The present value of all rent payable over the lease term, used to compute the rent element of SDLT/LTT on the grant (and certain variations) of leases.

A 'chargeable transaction' for either SDLT or LTT includes a sale, lease grant, or assignment where consideration exceeds the relevant threshold. The effective date is usually completion. If a transaction is substantially performed earlier (for example, the buyer takes possession or pays most of the price), that earlier date becomes the effective date, filing/payment deadlines run from that date, and Land Registry will require the tax certificate dated accordingly.

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.

A buyer is responsible for the tax and the return, though in practice the conveyancer prepares and submits it. For corporate buyers, internal sign-off may be needed alongside filing.

Certain transactions are exempt or outside scope, such as gifts with no consideration (but beware debt assumption), transfers on divorce/dissolution, and devolution on death. Always test whether any consideration in money or money’s worth exists; if so, tax may be chargeable notwithstanding the label placed on the transaction.

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 used or suitable for use as single dwellings (including their garden/grounds). Purpose-built student halls are usually not treated as residential dwellings for higher-rate purposes.
• Commercial/non-residential transactions: Offices, shops, warehouses, land with no dwelling, agricultural land, and mixed-use property.
• Mixed-use: If any non-residential element is present, non-residential/mixed-use rates apply to the entire consideration. In England and Wales, purchases of six or more dwellings in a single transaction can be treated as non‑residential for rate purposes.

Freehold and Leasehold

SDLT and LTT are assessed on the chargeable consideration for freehold sales. For leaseholds, tax is charged on both any premium and, for longer leases, on the NPV of rent payable during the lease term. On an assignment of an existing lease, tax is assessed on the consideration for the assignment (for example, an assignment premium); the rent element is not charged to SDLT/LTT on an assignment.

Variations that extend the term, add rent or otherwise materially change the lease can be treated as a surrender and re‑grant, potentially triggering a further charge and return.

Key Term: surcharge
An additional percentage rate applied to the residential rates in certain cases. In England, an extra 3% applies to purchases of additional dwellings; an extra 2% applies to non‑UK resident buyers. In Wales, a 4% higher residential rates supplement applies to additional dwellings (no separate non‑resident surcharge at the time of writing).

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 change from time to time. Always check the live HMRC and WRA calculators as at the effective date. Both SDLT and LTT use progressive bands applied to slices of consideration (including VAT where chargeable).

SDLT (England)

Current main residential rates (unchanged at the time of writing):

• Up to £250,000: 0%
• £250,001–£925,000: 5%
• £925,001–£1.5m: 10%
• Over £1.5m: 12%

First-time buyers’ relief may reduce the bill on purchases up to £625,000 (0% up to £425,000 and 5% on the slice to £625,000). No relief if consideration exceeds £625,000.

Commercial/non-residential main rates (illustrative bands):

• Up to £150,000: 0%
• £150,001–£250,000: 2%
• Over £250,000: 5%

If VAT is payable, SDLT is computed on the VAT-inclusive amount.

Additional overlays for residential SDLT:

• Higher rates for additional dwellings (3% on each band).
• 2% non‑UK resident surcharge, potentially refundable if residency criteria are satisfied in the permitted window.
• 15% flat rate for certain corporate purchases of high-value dwellings (over £500,000) where no relief applies (for example, genuine rental business reliefs may disapply the 15%).

LTT (Wales)

Main LTT residential bands (at the time of writing):

• 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%

For non-residential freeholds, the LTT bands differ; check the WRA calculator. A 4% higher residential rates supplement applies to additional dwellings in Wales. There is no separate non‑resident surcharge under LTT at the time of writing.

Exam Warning

Rates, thresholds and reliefs can change. Use the official HMRC/WRA calculators on the transaction date. England abolished Multiple Dwellings Relief (SDLT) for transactions with an effective date on or after 1 June 2024 (subject to limited transitional provisions). Do not assume MDR remains available for SDLT. Check current WRA guidance for any Welsh reliefs.

Reliefs and Exemptions

Both SDLT and LTT offer targeted reliefs.

• First-time buyers’ relief (SDLT): Reduced rates for qualifying purchases in England up to £625,000.
• Replacement of a main residence: The higher residential rates are disapplied if, at the effective date, the buyer is replacing their main residence (special timing and spouse/civil partner aggregation rules apply).
• Company and investment reliefs: Certain acquisitions by companies carry reliefs from the 15% SDLT rate (for example, property rental business; trading businesses), subject to conditions and possible ATED implications separate from SDLT.
• Linked transactions: Consider aggregation; reliefs may still apply depending on facts.
• Non-chargeable transactions: Genuine gifts with no consideration; certain transfers under court orders on divorce/dissolution; devolution on death. Beware assumption of mortgage debt—it is consideration.

For Wales, LTT has its own reliefs framework. Always check WRA guidance for current reliefs, including any multi‑dwelling or build-to-rent reliefs available under devolved rules.

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 £40,000 or more and already owns another dwelling anywhere in the world (subject to narrow ignored interests and inheritance exceptions). 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.

Replacement of a main residence exception/refund (SDLT):

• If the old main residence is sold on or before completion of the new purchase, higher rates do not apply.
• If the old main residence is sold within the permitted period after completion (normally within 36 months), a refund of the 3% element can be claimed. Refund claims must be made within the statutory time limit (currently within 12 months of the sale of the old residence, or within 12 months of the filing date for the return, whichever is later).

Spouses/civil partners are treated as one unit for ownership tests if living together. Minority interests and recent inheritances have special rules (e.g., a recently inherited ≤50% share may be disregarded for a limited period).

Non‑UK resident surcharge (SDLT only): A 2% surcharge can apply to non‑UK residents purchasing residential property. Residence is tested by physical presence within a 365‑day window straddling the effective date, with scope to claim a refund if residence is later satisfied in the permitted period.

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 (within 14 days) or LTT (within 30 days) after the effective date (usually completion or substantial performance). HM Land Registry/Cyfoeth Naturiol Cymru will not register the new owner until the SDLT5/LTT certificate is produced.

Late submission/late payment attracts financial penalties and interest. If the transaction is substantially performed before completion (for example, early possession), the filing deadline runs from that earlier date. Certain transactions below notification thresholds are not notifiable, but most freehold purchases and lease grants are.

Key Term: SDLT5 certificate
The official confirmation issued following submission/payment of SDLT; required for registration of title in England.

Key Term: LTT certificate
The official confirmation issued by the Welsh Revenue Authority after LTT submission/payment; required for registration in Wales.

Leasehold Transactions: Premium and Rent

For lease purchases:

• SDLT calculation: Charge on both any premium (price paid to acquire the lease) and NPV of rent if the lease term exceeds 7 years (or where a shorter lease is notifiable).
• LTT calculation: Similar dual calculation for premium and NPV of rent. For certain non‑residential lease premiums, the 0% band can be displaced if the ‘relevant rent’ exceeds a threshold (check current WRA rules), in which case the 1% rate can apply from the first slice.

On lease assignment:

• SDLT/LTT is generally computed on any assignment premium; the rent element is not charged on assignment.
• If an assignment forms part of a linked scheme (for example, back‑to‑back variations), aggregation and surrender‑regrant treatment may apply.

Variations:

• Increasing rent or extending term can be treated as a surrender and re-grant with a fresh charge and the need for a further return. Keep an eye on rent reviews that materially alter the NPV.

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, because the lease exceeds 7 years, to the calculated NPV of total rent (using separate rent bands).

Worked Example 1.4

Amir buys a freehold house in Bristol for £350,000 as his only residence. How is SDLT calculated (ignore any special reliefs)?

Answer:
Using main residential rates: 0% on the first £250,000; 5% on the slice £250,001–£350,000 (£100,000 × 5% = £5,000). Total SDLT = £5,000. If Amir were a qualifying first-time buyer, relief could reduce the bill if conditions are met.

Worked Example 1.5

Priya owns a flat and buys a second house in England for £400,000 to let out. How do higher rates affect SDLT?

Answer:
Compute at standard residential rates, then add the 3% supplement to each band. For example, 3% on the first £250,000 and 8% on the slice to £400,000 (5% + 3%). If Priya later sells her previous main residence within the permitted period, she may be able to claim a refund of the 3% element.

Worked Example 1.6

A company buys an older commercial warehouse in Swansea for £600,000. The seller has opted to tax, charging 20% VAT. What is the LTT base?

Answer:
LTT is computed on the VAT-inclusive price. Here, consideration is £720,000. Apply non‑residential LTT rates to £720,000. The SDLT/LTT interaction with VAT often produces “tax on tax”.

Worked Example 1.7

Ben buys a shop with a flat above (one freehold) in England for £700,000. Which rates apply?

Answer:
The transaction is mixed-use; non‑residential/mixed-use SDLT rates apply to the whole £700,000. The residential higher rates (3%) do not apply to mixed-use purchases.

Worked Example 1.8

Two linked purchases in Wales: Buyer acquires Plot A for £300,000 and, from the same seller, Plot B for £200,000 under a single arrangement. How is LTT computed?

Answer:
The transactions are linked. Aggregate consideration (£500,000) is used to find the rates, then tax is apportioned. This can push the buyer into higher bands than if considered separately.

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. Amended or further returns may be required (for example, to claim a later refund of the SDLT higher rates after selling the old main residence, or following lease variations affecting rent or term).

Practical filing points:

• Ensure the correct effective date (completion vs substantial performance).
• For SDLT refunds (higher rates), diarise disposal deadlines and refund‑claim windows.
• For non‑UK resident surcharge, keep travel/“days in UK” evidence in case of later residence‑based refund claims.

Practical Nuances and Common Traps

• Chattels apportionment: Only market-value apportionments for removable items should be deducted; artificial reductions risk challenge.
• Assumption of debt: Taking over a seller’s mortgage can be chargeable consideration even if no cash is paid.
• Six or more dwellings: In both jurisdictions, the buyer can usually choose non‑residential rates where six or more dwellings are bought in one transaction. In England, Multiple Dwellings Relief has been abolished for SDLT for most transactions taking effect on/after 1 June 2024 (subject to savings).
• Assignments vs grants: On assignment, tax is on any premium only; on a grant, tax may be due on both premium and rent (NPV).
• VAT: If VAT is chargeable, SDLT/LTT is computed on the VAT‑inclusive price.

Key Point Checklist

This article has covered the following key knowledge points:

• SDLT applies to chargeable property in England; LTT to property in Wales.
• Use residential vs non‑residential/mixed‑use rates appropriately; mixed‑use means the whole price is taxed at non‑residential rates.
• For leases, tax the premium and (for grants and qualifying variations) the rent via NPV.
• Buyers of additional dwellings face higher residential rates (3% SDLT; 4% LTT), subject to replacement of main residence rules and potential refunds.
• SDLT includes a separate 2% non‑UK resident surcharge and a 15% flat rate for certain corporate acquisitions of high-value dwellings where no relief applies.
• VAT charged on the price increases the SDLT/LTT base (tax is on the VAT-inclusive amount).
• Linked transactions require aggregation of consideration, potentially pushing the buyer into higher bands.
• SDLT first-time buyers’ relief can apply to qualifying purchases up to £625,000 in England; LTT has no equivalent general relief for first-time buyers.
• SDLT returns must be filed and paid within 14 days; LTT within 30 days. Certificates (SDLT5/LTT) are essential for registration.
• England has abolished Multiple Dwellings Relief for SDLT (with limited transitional savings). Always check current WRA rules for any Welsh reliefs.

Key Terms and Concepts

• Stamp Duty Land Tax (SDLT)
• Land Transaction Tax (LTT)
• chargeable transaction
• chargeable consideration
• mixed-use property
• linked transactions
• net present value (NPV)
• surcharge
• SDLT5 certificate
• LTT certificate