Stamp duty has been a form of tax present in the UK for a significant period of time, dating back to the 17th century. It originates from the Elizabethan times, when a tax stamp had to be attached to a document to denote that stamp duty had been paid. Historically, this would include documents such as cheques and marriage licenses and was later extended to cover items such as newspapers, lottery tickets, playing cards and insurance policies.
Today, however, following the 2003 Finance Act, stamp duty has been modernised and its scope significantly reduced. Stamp Duty Land Tax (SDLT) was introduced following the act as a compulsory tax on the substance of a conveyancing transaction. It remains alongside Stamp Duty Reserve Tax as one of the few surviving taxes of this nature. Stamp Duty Land Tax (SDLT) is payable when any property is purchased or transferred, whether or not the transaction involves payment through money or a non-monetary method of payment, such as payment through assumption of financial liabilities.
The total amount on which SDLT is payable is also called ‘chargeable consideration’. What is counted as chargeable consideration is defined very widely. In a straightforward transaction the chargeable consideration is the price paid for the property. This also includes any consideration in money, or ‘money’s worth’, given directly or indirectly by the purchaser. For example payment of the seller’s costs such as legal and estate agent fees, would usually constitute chargeable consideration. Other examples of chargeable consideration include any VAT payable in respect of the transaction and fees such as those that are only payable once the transaction goes ahead.
It is the view of HM Revenue & Customs that any fee charged which is ‘in reality given for the property’ must be included in the amount of chargeable consideration. They go on to state that the fee is indicated to be chargeable consideration if:
- it is a condition of the contract that the fee is paid
- completion of the property transaction is conditional upon the fee being paid
Any fee that does not have to be paid to secure the property, and can be viewed as a separate matter, will not constitute chargeable consideration. HMRC give an example of this as the purchaser’s own legal costs, as the fees are paid in return for legal services provided to the purchaser. The fees do not necessarily need to be paid to secure the transfer and the fees would still be paid even if the transaction fell through.
Where consideration is uncertain or has yet to be finalised, purchasers must make a reasonable estimate of the final consideration and pay SDLT on that basis.
Chargeable consideration, and the specific finances behind it, may be a difficult issue for any client of a solicitor or conveyancer to contemplate. Therefore, it is important a full understanding of SDLT and chargeable consideration can be passed forward to the client.