Factsheet 32 - Stamp Duty Land Tax (SDLT)

Stamp Duty Land Tax (SDLT)

Guidance on changes to stamp duty for short residential leases and tenancies 

Commencement:

The new Stamp Duty Land Tax (SDLT) system came into force 1 December 2003.

Introduction:

In his Budget Statement on 9 April 2003 the Chancellor of the Exchequer announced that a modernised system of stamp duty, renamed 'Stamp Duty Land Tax', would apply to most land transactions on or after 1 December 2003.  This change will have important repercussions for private landlords and letting agents, all of whom were previously required to have tenancy agreements stamped where the rental value of the tenancy exceeded £5,000 (either per annum, or over the term of the agreement).  In summary, the SDLT system introduces a replacement tax for stamp duty called SDLT which, for residential tenancies, will only need to be paid where the lease value exceeds the SDLT threshold – currently £125,000 , or, strictly speaking, £125,000 at net present value (NPV - explained further below).  Below this threshold, for the vast majority of private tenancies, no SDLT tax will be payable and so this change will be a welcome simplification for landlords.

New System: 

The SDLT system replaces the previous archaic system of impressing a physical stamp on documents with a regime in-line with that for other taxes.  People acquiring interests in land are required to submit a 'Land Transaction Return' to the Inland Revenue along with payment of the duty.  Stamp Duty Land Tax applies (subject to some transitional provisions) to all 'land transactions' completed on or after 1 December 2003. 'Land transaction' includes the conveyance or transfer of a freehold (in Scotland, transfer of ownership), the assignment or assignation of an existing tenancy and the grant of a new tenancy. It replaces stamp duty, which is abolished except for instruments relating to stock and marketable securities, and for instruments relating to some partnership transactions.   We are likely to see further minor changes to the SDLT rules in the future as the system is ‘fine-tuned’, and further anti-avoidance measures are incorporated.

Execution Date: 

The SDLT rules apply to all land transactions executed after 1 December 2003.  In the context of shorthold residential tenancies, this means that the system will apply to all new tenancies granted or with commencement dates after this date.  Transition rules will apply to existing tenancies where the tenancy is extended after 1 December 2003.

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