Stamp Duty Land Tax: important changes from 1 March 2019

From 1 March 2019, the period allowed in England and Northern Ireland for filing a Stamp Duty Land Tax return and paying the tax reduces from 30 days to 14 days.

There is now only one month to go until the window to file a Stamp Duty Land Tax (SDLT) return - and pay any tax due - will reduce from 30 days to 14 days following the effective date of a real estate transaction in England or Northern Ireland. Failure to meet the 14 day deadline may result in interest and penalties being levied on the taxpayer. 

In both Scotland and Wales, the deadline for filing returns and paying tax will remain at 30 days.

We anticipate this shortening of the SDLT filing and payment window will present a considerable practical challenge to conveyancers and their clients, particularly those acquiring interests in commercial real estate.

Background

The Government initially announced plans to reduce the filing and payment windows to 14 days in the Autumn Statement 2015, with the stated aim of increasing efficiency and reducing the compliance burden and costs for both HMRC and customers. While the advantage to HMRC of receiving payments of tax earlier is clear, it is less clear whether the taxpayer will enjoy any increased efficiencies or a reduced compliance burden.

The final plans were confirmed in the publication of the draft Finance Bill 2018-19, and the changes take effect from 1 March 2019.

The new timescales

The 14 day window for filing the SDLT return and paying tax will apply to:

• all land transactions with an ‘effective date’ on or after 1 March 2019; and
• all land transactions with an ‘effective date’ before 1 March 2019 but that did not become notifiable to HMRC until 1 March 2019 or later

The ‘effective date’ of a land transaction is the date of completion generally, but can be earlier where a contract for the sale of land or an agreement for lease is substantially performed. Examples of substantial performance include instances where the buyer/tenant takes possession of substantially all of the property in advance of completion, or pays a substantial proportion of the consideration for the transaction prior to completion.

The current 30 day window will continue to apply in circumstances where a second/further SDLT return is required however, following the filing of an earlier SDLT return. For example, where consideration which had previously been contingent or unascertained for the purposes of SDLT becomes ascertained, or where a relief claimed from SDLT on the earlier return has been withdrawn.

The deadline for making an application to HMRC to defer payment of SDLT in relation to contingent or uncertain consideration also remains at 30 days.

The deadline is 14 calendar days and therefore includes non-working days.

Practical impact

In most cases, the SDLT return for a transaction will be prepared by the conveyancer who will also arrange for payment of the tax to HMRC. The taxpayer will put the conveyancer in funds to pay the SDLT, and will review the SDLT return before authorising the conveyancer to submit the return on its behalf.

It is common practice in residential conveyancing for the SDLT return to be prepared in advance of completion to ensure that the conveyancer is in funds to pay the SDLT on completion.  

This is less common on commercial real estate transactions however, where preparing the SDLT return and arranging payment of tax is typically treated as a ‘post-completion’ matter. Best practice will now dictate that the SDLT return is prepared and authorised prior to completion, with the taxpayer funding its conveyancer to pay the tax at that time. Based on current practice, this will require a significant change in behaviours on the part of both taxpayers and conveyancers.  
Other practical steps which could be taken to seek to mitigate the impact of the shortened filing window and period for paying tax could include:

• raising awareness within the taxpayer organisation of the new deadline and the need to address SDLT issues quickly
• ensuring that the taxpayer notifies its conveyancer as soon as possible where the taxpayer “substantially performs” its contract or agreement for lease (or, ideally, notifying the conveyancer when substantial performance is being contemplated)
• ensuring that where the taxpayer is a large organisation, a number of people have authority to approve SDLT returns (in case the 14 day window matches the length of the finance director’s family holiday)
• the conveyancer and taxpayer should ensure that accurate contact details are shared so that efficient lines of communication are available for the authorisation of SDLT returns and the payment of tax
• the taxpayer could arrange to pay tax to HMRC directly (avoiding the need for funds to be transferred to the conveyancer prior to submission to HMRC)

If you would like to discuss the contents of this article with us, please call Daniel Kennedy on 03700 86 8804 or email [email protected] or get in touch with your usual Shoosmiths contact.