As the stamp duty land tax comes into force, Matthew Hutton and Sharon Anstey look at the finer details

The stamp duty land tax (SDLT) will be introduced on 1 December 2003.

And although it has been presented as the result of a consultation on modernising stamp duty, it is in fact a wholly new tax that is substantially different from the stamp duty charge previously imposed on land and buildings.

The SDLT is charged on a land transaction (see section 42).

Stamp duty is a tax on documents - where there is no document there is no stamp duty.

The SDLT, by contrast, is charged regardless of whether there is an instrument effecting the transaction or whether such an instrument is executed in the UK, or whether any party to the transaction is present or resident in the UK (section 42).

The SDLT will not be chargeable on transfers of land situated outside the UK, even if they are executed in the UK.

This is in contrast to the stamp duty rule, under which an instrument executed in the UK was chargeable regardless of whether or not it related to UK land.

A 'land transaction' is defined as any acquisition of a chargeable interest (section 43).

However, the general rule to identify a land transaction in section 43 is overridden in certain situations (see sections 43-47).

Contract and conveyance

Special rules apply where a transaction will be completed by a conveyance pursuant to a preceding written contract (section 44), which will occur in the majority of land transactions.

Section 44 provides that in such circumstances, an SDLT charge arises on the earlier of the conveyance and the substantial performance of the contract.

'Substantial performance' is a new concept introduced in the SDLT legislation.

A contract is substantially performed when: 'the purchaser or a person connected with the purchaser takes possession of the whole or substantially the whole of the subject matter of the contract; or when a substantial amount of the consideration is paid or provided' (section 44(5)).

A definition of 'a substantial amount of the consideration' is not provided in the legislation.

The Inland Revenue has suggested, as a rule of thumb, that it is 'an amount equal to or greater than 90% of the total consideration due under the contract' (see SDLT manual 7950).

When the contract is substantially performed and then subsequently completed, both the contract and subsequent completion are notifiable transactions (section 44(8)(a)).

Section 45 applies where a contract for a land transaction is entered into (the 'original contract') and there is an assignment, sub-sale or other similar transaction in relation to the original contract, resulting in a person other than the original purchaser being entitled to call for a conveyance to him.

Section 45(3) deems the transfer of rights to be a contract for a land transaction.

The substantial performance or completion of the original contract will be ignored only if it takes place at the same time as the substantial performance or completion of the secondary contract.

This is the SDLT version of sub-sale relief.

Chargeable interest

A chargeable interest is defined as an estate, interest, right or power in or over land in the UK or the benefit of an obligation, restriction or condition affecting the value of any such estate, interest, right or power other than an exempt interest (section 48).

This is a wide definition that will obviously cover freehold and leasehold interests, rights of way, restrictive covenants and also trust interests.

An 'exempt interest' is any security interest, licence to use or occupy land, tenancy at will, an advowson, franchise or manor (section 48(2)).

A land transaction is a chargeable transaction if it is not a transaction that is exempt from charge (section 49).

Schedule 3 provides for certain transactions to be exempt, which includes some of the exemptions under the stamp duty regime.

For example, category 1 provides that where there is no chargeable consideration for the transaction, it is exempt.

This would cover gifts, testamentary dispositions and dispositions of property to beneficiaries under a trust.

Unlike the stamp duty regime, there is no requirement for a certificate to be included in the instrument.

Instead, the purchaser has to certify that no land transaction return (LTR) has to be completed.

This self-certificate is sent to the Land Registry to enable registration of the purchaser's title.

The amount of SDLT chargeable in respect of a chargeable transaction is a percentage of the chargeable consideration for the transaction (section 55).

The rates are the same as the current stamp duty rates except in relation to leases.

To benefit from the lower rates of SDLT, there is no requirement to include a certificate of value in the transfer document as is the case with stamp duty.

Chargeable consideration

Chargeable consideration is defined in section 50 and schedule 4.

Generally, chargeable consideration is any consideration in money or money's worth given directly or indirectly by a purchaser or a person connected with him (schedule 4, paragraph 1).

This definition is wider than the stamp duty rule.

In determining the chargeable consideration, regard must be had to the rules in schedule 4 and sections 51-54.

Where the consideration is contingent or uncertain, it is possible for an application to be made to defer the tax at the discretion of the Revenue (section 80).

For every notifiable transaction, the purchaser must deliver an LTR, with payment of the SDLT due, within 30 days of the 'effective date' of the transaction (section 76).

Section 77 defines what land transactions are notifiable land transactions.

Who is liable for the SDLT? The purchaser is expressly made liable for compliance and payment obligations under the SDLT (section 85).

The SDLT must be paid within 30 days of the transaction or of a determination or assessment (section 86).

There are special rules in relation to joint purchasers, partners and trustees.

A document cannot be registered at the Land Registry without a certificate as to its compliance with the SDLT (section 79).

This will be either an Inland Revenue certificate or a self-certificate.

For the purposes of SDLT, several reliefs are carried over in more or less the same terms as those under the stamp duty regime (together with some additional reliefs, details of which are contained in the Finance Act 2003).

Is a transaction subject to stamp duty or the SDLT? A transaction will be subject to the SDLT if its effective date is on or after I December 2003.

However, there are transitional rules that apply to contracts made before that date (schedule 19).

The full force of the compliance provisions under the self-assessment regime appear in the new the SDLT regime and are contained in section 78 and schedule 10.

Sharon Anstey and Matthew Hutton are non-practising solicitors and chartered tax advisers.

They are the authors of Stamp Duty Land Tax, available from www.mckieandco.com