Rayner case shines light on SDLT complexities

The resignation of former deputy Prime Minister Angela Rayner earlier this year following revelations about her tax arrangements related to the purchase of a second property has highlighted the complexity of the rules around Stamp Duty Land Tax (SDLT). Despite seeking advice, Ms Rayner failed to pay the correct rate and stepped down from government. Here we take a look at the rules around SDLT.

Principal Private Residence

Ms Rayner resigned after it came to light that she paid standard SDLT on a property purchase for a flat in Hove, East Sussex, and declared it was her principal private residence.

This meant she did not pay the additional surcharge tax levied on second property purchases, which is 5% above standard SDLT. In her resignation letter, Ms Rayner said she 'became aware that is likely I inadvertently paid the incorrect rate for SDLT'.

This resulted in an underpayment of a reported £40,000 in SDLT on the £600,000 flat purchase on the south coast, which occurred as her original property is held in trust for one of her children. However, tax rules mean that higher rate SDLT was payable as the child is aged under 18.

Complex rules

The case was investigated by the independent adviser on ministerial standards who noted on the SDLT that 'in the context of the specialist type of trust in question - the interpretation of these rules is complex'.

The adviser continued: 'On the basis of the advice she received, Ms Rayner believed that the lower rate of SDLT would be applicable, indeed she was twice informed in writing that this was the case; but in those two instances, that advice was qualified by the acknowledgement that it did not constitute expert tax advice and was accompanied by a suggestion, or in one case a recommendation, that specific tax advice be obtained'.

They added: 'If such expert tax advice had been received, as it later was, it would likely have advised her that a higher rate of SDLT was payable.'

Who pays SDLT?

SDLT is payable by the purchaser in a land transaction occurring in England and Northern Ireland. For land transactions occurring in Scotland, Land and Buildings Transaction Tax (LBTT) applies, and in Wales land transactions are chargeable to Land Transaction Tax (LTT).

What is a land transaction?

A transaction will trigger liability if it involves the acquisition of an interest in land. This will include a simple conveyance of land such as buying a house, creating a lease or assigning a lease.

What is the tax charged on?

Tax is chargeable on the consideration. This will usually be the actual cash that passes on the sale. However, the definition is very wide and is intended to catch all sorts of situations where value might be given other than in cash: for example, if the purchaser agrees to do certain work on the property.

When is the tax payable?

The tax has to be paid when a contract has been substantially performed. In cases where the purchaser takes possession of the property on completion, that will be the date. However, if the purchaser effectively takes possession before completion - known as 'resting on contract' - that will be regarded as triggering the tax.

How much tax is payable on residential property?

Each SDLT rate is payable on the portion of the property value which falls within each band.

Additional residential properties

Higher rates of SDLT are charged on purchases of additional residential properties (above £40,000).

The main target of the higher rates is purchases of buy to let properties or second homes. However, there will be some purchasers who will have to pay the additional charge even though the property purchased will not be a buy to let or a second home. The 36-month rule set out below helps to remove some transactions from the additional rates (or allow a refund).

The higher rates are 5% above the SDLT rates shown in the table above. The higher rates potentially apply if, at the end of the day of the purchase transaction, the individual owns two or more residential properties.

Further details

• Purchasers will have 36 months to claim a refund of the higher rates if they buy a new main residence before disposing of their previous main residence.
• Purchasers will also have 36 months between selling a main residence and replacing it with another main residence without having to pay the higher rates.
• A small share in a property which has been inherited within the 36 months prior to a transaction will not be considered as an additional property when applying the higher rates.
• There will be no exemption from the higher rates for significant investors.