Elizabeth Cook, Real Estate Solicitor, considers the impact of changes to the SDLT regime.
1 March 2019 sees a major change being instigated to the Stamp Duty Land Tax (“SDLT”) regime in England and Northern Ireland. The time period to file the initial SDLT return and to pay any duty payable is significantly reduced from 30 days to 14 days.
It should be noted from the outset that the reduction does not impact the Land Transaction Tax regime in Wales and Scotland, nor does it apply to any additional returns which are sent to HMRC in the form of a letter (e.g. when additional returns are made to HMRC by way of a letter under the growing lease regime or turnover rent balancing exercise).
The rationale behind the reduction is that HMRC’s records show that the majority of SDLT returns are filed within 7 days of the effective date and so 30 days is an unnecessary time frame to file returns. This is a fair stance to take if all transactions are straightforward, run of the mill freehold transfers or completion of a new lease where the lease commences on the effective date. The position is even truer when you factor in that most firms, especially on residential transactions, collect the funds required for the duty payable and have the return signed ahead of completion.
But HMRC’s approach fails to take into account complex transactions that do not allow for SDLT to be calculated ahead of completion as the calculation is contingent upon the day of completion. From a leasehold perspective, some of these situations may arise when:
- your client has been holding over for more than a year, and you need to apply overlap relief against the amount payable upon completion of the new lease;
- the lease contains turnover rent provisions and you need a confirmed effective date to calculate the turnover rent years. You then need to wait for your client to provide you with the turnover figures for those years;
- your client has been occupying under a tenancy at will during the period when the renewal lease is being agreed, and the renewal lease is backdated to the day after the contractual expiry of the previous lease. As the period from the term commencement date up to the effective date is treated as a premium (calculated on a daily rate), it can’t be calculated until the effective date is known;
- a renewal lease where the lease is backdated to another date which is not the expiry of the previous lease; and
- the lease is substantially performed as the tenant enters the property under an agreement for lease, but this is done at the last minute by the tenant.
The above scenarios are examples of some of the situations where calculating the SDLT can in some instances, take hours to calculate and days to finalise, especially if waiting for further information from the client, such as turnover figures. Therefore, the knock on effect from reducing the SDLT filing and payment deadline means that practitioners will be up against it when pulling together the information for the more complex calculations. Add to this that the penalties will kick in after the fourteenth day, then it could potentially lead to trouble for both practitioners and the clients.
Resolving Practical Issues
As shown above, the main issues that will come out of this change will be more on a practical level. The first thing is to ensure that clients are aware of the new deadlines so that they can plan accordingly. They may need to make changes to their own internal procedures, including authorising more than one signatory as 14 days can now be the same as a two week summer holiday, together with paying the SDLT directly to HMRC once practitioners have submitted the return online and generated the SDLT5.
If the completion date has been set, then you can ask the client to start compiling the requisite information as soon as possible whether that be turnover figures, payment processes or having signatories available. By agreeing a completion date, this will also allow practitioners the chance to prepare the SDLT ahead of completion, and as such, gives them some breathing space when pulling the return and payment together.
Overall, with the change looming, it’s fair to say that SDLT will become a priority in both pre- and post-completion considerations, to make sure that both clients and practitioners comply with the incoming deadline changes.