CGM solicitors incorporating ChartahouseHead Office 2/5 College Place Southampton, SO15 2UT, United Kingdom, 02380 632733/02380 842765, enquiries@c-g-m.co.ukStamp Duty - The ruleshttp://www.c-g-m.co.uk03:17 07-Sep-2010STAMP DUTY LAND TAX What is Stamp Duty Land Tax? Land transactions fall into 3 categories; 1. those requiring the submission of a tax return called a Land Transaction Return to the Inland Revenue. The Revenue will then issue a certificate as evidence that tax has been paid which will allow the registration of your transaction to be processed by the Land Registry. This will cover a majority of property purchases. 2. those transactions requiring a self-certificate to be supplied to the Land Registry with your registration 3. those transactions which are exempt from the tax. When is Stamp Duty Land Tax payable? The tax is payable on most transactions involving land. For example, transfers of freehold and leasehold properties, grants of leases and contracts for options and rights of pre-emption. It is expected that the Land Transaction Return will be required in 98% of residential transactions. The tax is not payable (exempt) on mortgages, transactions for no chargeable consideration (gifts) or licences to occupy land. Who is responsible for the tax? The purchaser (or tenant or person who benefits from the transaction) is liable to pay the tax and has the responsibility to notify the Inland Revenue of the “liability to tax” within 30 days of completion. Where there is more than one purchaser, your duty to pay the tax is joint and several even if one of you is providing the funds for the purchase. What is the Land Transaction Return? This is a 5 page form to be submitted to the Inland Revenue which contains information about your transaction including your details, the sellers’ details, details of the property and monies changing hands. Your national insurance number is also required and the Return must be signed all purchasers in the transaction. What happens after submission of the Return? Once the Inland Revenue has accepted your Return they will issue a certificate which is essential to enable your purchase to be registered with the Land Registry. Your purchase cannot be registered without this. What are the penalties if the Return is late? There is a fixed penalty of £100 if the return is filed after 30 days but within 3 months of completion and a penalty of £200 in any other case regardless of whether any tax is payable. Furthermore there is a tax related penalty if there is a failure to file the Return within 12 months. Any delay in the submission or acceptance of the Return by the Inland Revenue will lead to delays in the issue of the certificate required by the Land Registry. How will we help you? In ordinary transactions we anticipate that we will submit the Land Transaction Return on your behalf as soon as possible after completion provided we are holding a completed and signed Return. Once the Return has been signed by you we will treat this as your irrevocable authority to submit the form on your behalf without further reference to you. We will endeavor to complete the form as accurately as possible, in reliance on the information provided by you and that obtained during the course of the transaction. However, you have ultimate responsibility for the accuracy of the information contained in the Return and to ensure that the Return is filed within the time limits. Should there be delays on your part in returning the signed form to us, supplying us with information required or giving us inaccurate information you will be responsible for any late return penalties. In assisting you with the submission of your Land Tax Return we will act as the “tax agent” in a similar way to accountants with other tax returns. Accordingly there is no agent/principal relationship and we will not have any corresponding liability unless we make an error on the Return. Why will we charge you an additional sum for completing the Return on your behalf? The procedure is more complicated than the previous regime for stamp duty and the Return is lengthier. The estimated time taken to complete the form is 30 minutes for a simple freehold purchase with leases taking longer and commercial transactions even longer. We therefore feel that the completion of the Return is outside our usual retainer. Can I complete the Return myself? There are several difficulties with this. The first is that the Return needs several codes to enable the Inland Revenue’s computer to process the form. In completing the Return on your behalf we hope that the form will be completed accurately and a certificate issued without delay. Furthermore, if you are obtaining a mortgage to finance your purchase we have an obligation to your new lender to ensure that stamping and registration procedures are carried out within the time limits to prevent any prejudice to the lender. Therefore, in carrying out the work ourselves we can meet the requirements of your lender without any conflict of interests. What is the “process now, check later” system used by the Inland Revenue? The Inland Revenue may enquire into your transactions after the issue of the certificate for a period of up to 9 months after the filing date. The Revenue may correspond with you and us and it is important that you understand that any additional work carried out on your behalf will be over and above our original retainer and we reserve the right to charge you further fees in respect of this work. Should you decide to deal with the enquiry yourself you may need documents from our files and we advise you that our files are usually placed long-term storage after completion of your registration and there may be a delay in obtaining the documents you require. Documents relating to your transaction will be kept for a minimum of 6 years to compile with the requirements of the Revenue. You also need to be aware that you may be liable for any shortfall from the self-assessed amount after any such enquiry. There may also be occasions where tax has been overpaid. How much tax is payable? The rates relating to residential transactions are unchanged and as follows; Purchase price Up to £60,000 0% £60,001 - £250,000 1% £250,001 - £500,000 3% Over £500,000 4% The amount of tax is rounded down to the nearest £1. Chattels Stamp Duty Land Tax will not be payable on the sale of chattels. Only the true value of chattels may be deducted from the purchase price and any over-valuation of the value of chattels is a fraud on the Inland Revenue which may render both you and us liable for criminal sanctions. Furthermore, such conduct may constitute unprofessional conduct for which we may face disciplinary proceedings. The Inland Revenue website has further information on this and generally the value of chattels is taken as their reasonable secondhand value and not on a “new for old” basis. The Revenue carries out spot checks on transactions around the threshold bands to ensure that frauds are not being committed. A further point to note is that a contract based on fraud is unlikely to be enforced by a Court should the seller, for instance, fail to carry out his obligations under the contract. What if no tax is payable? Transactions where tax is charged at 0% still have to be notified to the Inland Revenue on a Land Transaction Return and a certificate issued to enable registration to take place. There also some transactions in which reliefs are available which result in a reduction or no tax due. However, as above, a Return will still need to be filed. Examples of these transactions are leases granted by Social Landlords, Right to Buy purchases and/or purchases in disadvantaged areas. Provisions for leases The grant of a new lease (for example purchases of new flats) involves a more complicated calculation with tax payable on both the purchase price and ground rent. We will be in a position to notify you of the Stamp Duty Land Tax once we receive the relevant papers from landlords/developers solicitors. Any comments or questions? We will monitor our procedures to try and make the process as efficient as possible and welcome any feedback from you. In the meantime we will be happy to answer any questions you may have about the new tax. Andrea Waring CGM SOLICITORS |