You have completed a land transaction. You are aware that you have stamp duty land tax (SDLT) to pay. You have found HMRC’s online SDLT calculator via its website. You have answered meticulously the many questions posed by the calculator. The calculator has told you the amount due and you have paid it. The only problem is, you have paid the wrong amount of SDLT!
How could this happen? The answer, worryingly, is that it can happen in numerous ways.
For instance, there is a special rate of SDLT (a flat 15% rate) for purchases by companies of residential properties costing more than £500,000. There are various exemptions from the charge, which broadly apply where the property is bought for business purposes, but, if these exemptions are not available, the charge will arise.
The problem is that the SDLT calculator does not cater for this charge. It is mentioned elsewhere on HMRC’s website but not during the process of using the calculator. So using the calculator will bring you to the wrong answer and lead you to paying too little SDLT.
The same thing can happen if you are buying more than one property and the purchases are linked with each other. SDLT generally has to be calculated in that case on the total consideration payable for the linked transactions (subject to the reliefs mentioned below). But the SDLT calculator will not tell you this and will again suggest a figure which is too low.
The calculator is equally adept at over-stating the SDLT liability. There are two reliefs which can reduce the SDLT liability where a number of dwellings are bought together.
First, if six or more residential properties are bought in one transaction the non-residential rates of SDLT apply to the purchase. These rates are much lower than the residential rates.
Secondly, if more than one dwelling is bought in the same transaction, or in a linked transaction, the SDLT can be calculated by reference to the average price paid for each property (multiplied by the number of properties). (If both this and the previous relief are available you can choose to claim the one which produces the lower SDLT.)
Again, users of the SDLT calculator will find no reference to these reliefs and will be directed to pay too large an amount.
Neither can the SDLT calculator deal with ‘overlap relief’ – a relief which reduces the SDLT payable on the grant of a new lease where there has been a surrender of an existing lease (or sometimes where the existing lease has been held over). The complexities of the SDLT calculation in such cases are currently beyond a single use of the SDLT calculator, though it can assist in getting to the right answer. (HMRC does not think overlap relief applies where the existing lease was subject to stamp duty, rather than SDLT, whereas some tax specialists do, but that is a separate story.)
All in all, the moral must be to be very careful when using the SDLT calculator. And (you can see where this is going) always take appropriate advice before relying on the figures it produces.
This article was published in Tax Journal in September 2017.