Budget Notes

BN57 STAMP DUTY LAND TAX (SDLT): NOTIFICATION THRESHOLDS FOR LAND TRANSACTIONS AND RATE THRESHOLDS FOR LEASEHOLD PROPERTY

Who is likely to be affected?

1. Persons entering into land transactions (including linked land transactions) where the chargeable consideration is less than £40,000.

2. Persons entering into transactions in respect of a lease for a period of seven years or more where the grant, assignment or surrender of the lease is made for a chargeable consideration (other than rent) of less than £40,000 and the rent is less than £1,000.

3. Persons affected by the rules that HM Revenue & Customs (HMRC) introduced to prevent manipulation of thresholds where both rent and premium are payable on a lease (the "£600 rule").

General description of the measure

4. Legislation will be introduced in Finance Bill 2008 to change the rules for persons notifying HMRC about land transactions. The "£600 rule" will also be changed and, from later this year, agents will be allowed to sign declarations in the certificate that no stamp duty land tax (SDLT) is due.

Operative date

5. The revised notification thresholds on land transactions and the changes to the "£600 rule" will have effect for transactions on and after 12 March 2008.

6. The change to SDLT forms allowing agents to sign the declaration in the certificate that no stamp duty land tax is due on behalf of their clients will be made by regulations in due course.

Current law and proposed revisions

SDLT thresholds

7. SDLT is charged, at varying rates, on the consideration given for a land transaction. At present, as a general rule, no tax is payable on transactions in residential property if the consideration does not exceed £125,000 (and on transactions in non-residential property if the consideration does not exceed £150,000). Tax is payable at 1 per cent if the consideration exceeds £125,000 for residential properties (or £150,000 for residential properties which can claim disadvantaged area relief, and non-residential properties) but does not exceed £250,000. Tax is payable at 3 per cent if the consideration exceeds £250,000 but does not exceed £500,000, and at 4 per cent for consideration above £500,000.

8. HMRC must be notified about most transactions involving the acquisition of a major interest in land for consideration unless specifically exempted. This measure will raise the threshold for when a person has to notify HMRC of a land transaction.

9. Leases must be notified if the lease is for a period of seven years or more and the grant is made for a chargeable consideration. Leases should also be notified when they are granted for periods of less than seven years but tax is chargeable at a rate of 1 per cent or higher on either or both any premium or rent paid. This also applies in circumstances where there would have been tax chargeable at a rate of 1 per cent or higher but for the availability of a relief.

10. Since most transactions currently have to be notified to HMRC, many of the transactions notified are ones where no SDLT is payable.

11. This measure will raise the current threshold for notification of nonleasehold transactions from chargeable consideration of £1,000 to £40,000.

12. Transactions involving leases for a term of seven years or more will only have to be notified where any chargeable consideration other than rent is more than £40,000 or where the annual rent is more than £1,000.

13. Moreover, further changes will mean that it will no longer be necessary to complete either a stamp duty land tax return (HMRC form SDLT1) or certificate that no stamp duty land tax is due (HMRC form SDLT 60) if the transaction is below the notifiable threshold.

The "£600 rule"

14. Provisions in the Finance Act 2003 prevent the manipulation of lease thresholds and apply to leases where payment is made by both rent and a premium when the lease is signed. The rule states that where the annual rent on a lease is more than £600, then the normal 0 per cent thresholds that would have effect, £125,000 for residential property and £150,000 for non-residential property, are withdrawn and SDLT is charged at 1 per cent. This measure will amend these rules as follows:

•    for non-residential properties where the annual rent on a lease is £1,000 or more then the normal 0 per cent threshold that would have effect at £150,000 is withdrawn and SDLT is charged at 1 per cent; and

•    for residential properties the rule will no longer have effect and, regardless of what rent is paid, the normal thresholds will have effect to any premium paid. This amendment will also have effect in respect of disadvantaged areas relief.

The certificate that no stamp duty land tax is due (form SDLT 60)

15. The HMRC form prescribed by regulations does not permit agents to sign the certificate that no SDLT is due on behalf of their clients (form SDLT 60). The form can only be signed by the person making the transaction. HMRC will amend that form by regulations later in 2008 so that agents will be able to sign the declaration in the certificate on behalf of their clients.

Draft legislation

16. Draft legislation and explanatory notes have been published today on the HM Revenue & Customs website.

Further advice

17. If you have any questions about this measure, please contact the Stamp Taxes Help Line on 0845 603 0135. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk