SDLT has meant headaches for property practitioners. Charles Horsfield and Caroline Andresier explain
It is with a sense of relief that you meet the tax return deadline. It can be forgotten for another year in the knowledge that the £100 fine has been averted.
However, spare a thought for those in the property industry (principally lawyers) who are having to come to terms with SDLT and the bureaucracy that goes with it. Not only do they face potentially numerous forms, but they are also subject to the same threat from the Inland Revenue of a fine plus penalties if the forms and tax cheque have not been lodged on time. Far from being a once-a-year irritation, the scenario applies to most property transactions, and the forms will often need to be completed even where SDLT is not payable.
Teething troubles
SDLT came into force on 1 December 2003. It swept away most of the stamp duty mitigation schemes that dominated the top end of the commercial property market and brought with it a whole new regime. The Revenue has admitted that its introduction had been hurried and its own staff ill-prepared for the practicalities of payment. Four months on, the position is improving, but some of the original problems remain.
Initially, the payment system was entirely paper-based. Practitioners had just two weeks in which to order the necessary paper forms from the Revenue. The lack of electronic versions of forms SDLT 1 to 4 meant that the order and delivery service struggled as practitioners sought supplies. Such problems were predictable given the timescale. But things are improving: some forms are now available online, and the Revenue has launched its own “complete-on-screen” version of SDLT 1, the most important form.
Every notifiable transaction requires the completion of the eight-page form SDLT 1. Many deals will also call for supplementary forms; for example, if one of the parties is a company, or the transaction involves the grant of a new lease. The Revenue defends this by saying that most transactions (by which it means residential transactions) require only a form SDLT 1 — and not even all of that form. But this is of little comfort to those acting in commercial property deals where one short form, a cheque and a trip to the Stamp Office has been replaced by lengthy and tiresome form-filling — in many cases, numerous forms.
What the Revenue is doing with the copious detail demanded by the form is a matter for conjecture. Can the financial details of each occupational lease really be of use? Form SDLT 1 contains half-a-dozen questions that must be answered in respect of each lease. If these are not completed, the land transaction return will not have been correctly completed. But owing to the inconsistencies between the forms and the guidance, many practitioners are probably unaware of this requirement. The information will take time to collate, but it must be done; failing to submit a correctly completed return within the time limit runs the risk of an automatic £100 fine. However, for the time being, the Revenue will not impose a fine if the forms are submitted within 40 days (rather than the prescribed 30 days).
Potential future problems
The new system was designed primarily for a standard residential property purchase between two sellers and two buyers. This has meant that practitioners have had to display a certain degree of creativity when dealing with more complex commercial property deals.
On the grant of a lease, the forms require details of any covenants and conditions that would affect its value. Arguably, they all do: so which to disclose? Details of any break right must be disclosed — but what if there is more than one? The Revenue’s advice is: “Just do what seems sensible.” But under the “process now, check later” regime that applies to SDLT, clients will remain vulnerable for years to come. The Revenue has up to six years within which to investigate a transaction and it could, in theory, charge interest and penalties for mistakes that had not been picked up when the forms were filed. As a result, clients understandably wish to place the responsibility for the land transaction return with its advisors.
Beautifully understated
Teething troubles are inevitable following such a wholesale change in regime: nothing is seamless. Difficulties arose in respect both of the actual law — which was subject to various regulatory changes almost to the last minute, so that provisions were accidentally repealed in the confusion — and the practicalities — the online Revenue calculator appeared only at the very last moment. But the novelty has worn off and we will soon forget about life before SDLT.
What do you get in return for your efforts? The SDLT certificate, which is issued once the forms and cheque have been accepted by the Revenue, is beautifully understated. No exotic seals on crisp parchment. We have to make do with a flimsy handwritten certificate. What a disappointment!
Charles Horsfield is a partner and Caroline Andresier is a solicitor in the corporate real estate group at Macfarlanes
