Q. One of the clauses in my tenancy agreement mentions that Stamp Duty Land Tax may be charged to the tenant? Isn’t Stamp Duty something that buyers purchasing a property pay, why is this relevant to rentals? Can you enlighten me?
A. Stamp Duty Land Tax (SDLT) isn’t only confined to sales. Tenants in rented accommodation in the UK that pay substantial annual rental amounts, may be required to pay Stamp Duty Land Tax (SDLT). Many tenants are unaware of this legal obligation, which if not complied with, may result in the tenant being fined by HMRC. It’s important that tenants remember that they could have an obligation to pay SDLT when renting a property too. SDLT is due on rents that exceed £125,000, cumulatively, during tenancies and (unlike SDLT for sales transactions) is charged at 1% on any amount over and above that threshold, not on the entire cumulative amount of rent. Since December 1st 2003, the responsibility for paying any Stamp Duty Land Tax liability which may become due on a Tenancy Agreement, of a cumulative rental value of more than £125,000 rests solely with the Tenant. For example: If the net present value of the rent is more than the residential property Stamp Duty Land Tax threshold of £125,000 the tenant has to pay Stamp Duty Land Tax on the rent. In this case you calculate the tax at a flat rate of 1% on the amount of the net present value that exceeds the Stamp Duty Land Tax threshold. S0, if the net present value of the rent under a lease is £140,000 then the amount of the net present value that’s over the £125,000 threshold is £15,000. Stamp Duty Land Tax has to be paid on this £15,000 at the rate of 1% (£150). If you ever reach – or are close to reaching – the £125,000 threshold, it is always best to contact HMRC and confirm with them the amount you need to pay and arrange to pay it directly to them. Please be aware that HMRC may impose fines or penalties if you fail to make payment.