Compliance under Stamp Duty Land Tax (SDLT)

This is a brief guide to the new Compliance regime that is built into SDLT, highlighting the changes in procedures and policies.

Previously stamp duty was a charge on documents and there was no legal obligation to have documents stamped. However, if they were not, they could not be used in a variety of situations such as registration of title to land and civil court action.

In practice, stamp duty was 'voluntary' and the compliance regime that existed comprised of the ability to refuse to stamp documents in certain circumstances.

SDLT introduced on 1 December 2003 is a 'process now, check later' system, requiring the completion and submission of a land transaction return (and payment) to our data capture centre in Netherton, for transactions in land and buildings in the UK, completed on or after 1 December 2003.

SDLT has brought a modern, comprehensive compliance framework to stamp duty, for the first time mirroring enquiry provisions already in place for other taxes administered by the Inland Revenue. In common with those other taxes the responsibility for completing the form correctly lies with the purchaser. Practitioners may need to draw their clients' attention to this and to the part of the form where the purchaser can indicate that they want their agent copied in on any subsequent correspondence from us.

Random and risk based enquiries

A small selection of land transaction returns are selected for review. Some enquiries will be selected at random and others will be selected on a risk basis. The overwhelming majority of transactions are accepted and certificates issued without an enquiry.

Enquiry Window

We have a fixed time that we can start an enquiry- this is known as the enquiry window and is a period of 9 months:

• after the filing date (the date on which the return is due), if the return was delivered on or before that date;
• after the date on which the return was delivered, if the return was delivered after the filing date;
• after the date on which any amendment was made by the purchaser.

Enquiries will also be conducted into self-certificates given to the land registries.

Any enquiry will start with a letter to the purchaser, with a copy sent to their professional adviser if they have completed the correspondence box on the return (SDLT 1). At the end of the enquiry a letter closing the enquiry will be issued to the purchaser and copied to their professional adviser, again where the correspondence box has been completed (question 59 on page 5 of the SDLT 1).

Interest and penalties for late delivery / incorrect completion of returns

Land transaction returns are due within 30 days of the effective date of the transaction. For the majority of transactions the effective date is the date of completion of the transaction, whether or not this is evidenced by a document. However if a contract is substantially performed before completion, the date on which substantial performance takes place is the effective date. Broadly substantial performance is the point at which:

• payment of the whole, or substantially the whole, of consideration other than rent (in practice, and unless the circumstances are unusual, we will accept that 'substantially the whole' means not less than 90%); or
• the purchaser is entitled to possession of the property; or
• the first payment of rent is made.

If the filing date is missed a penalty or penalties will be imposed.

If the SDLT owed is paid late, interest will also be charged.

When penalties are imposed, how much are they?

Fixed penalties
If we don't receive the land transaction return or any payment of the SDLT due within 30 days of the effective date of the transaction (the filing date) but within three months of the filing date, a £100 penalty will automatically be levied. In all other cases, a £200 penalty will be automatically charged.

If we find something wrong with a land transaction return during an enquiry
As well as imposing penalties for the late submission of a land transaction return, a penalty may be due if we find something wrong with a land transaction return.

We can only seek penalties for incorrect land transaction returns if SDLT is understated and the error was due to negligence or fraud.

When calculating any penalty we will take into account:

• the extent to which anything that was wrong was voluntarily disclosed;
• the help we receive in concluding our enquiries; and
• the seriousness of the errors or omissions.

We should be informed about any relevant matters when we work out what penalty to charge.

General
We will try to agree a settlement by contract on the amounts of tax, interest and penalties that are due. If agreement cannot be reached, we may formally determine the penalty we think is appropriate.

If a land transaction return is more than a year late we can impose a tax-based penalty of up to the total amount of tax due on the land transaction return.

When a penalty has been imposed

If a penalty is imposed we will send out a formal notice.

The penalty is due for payment at the end of the period of 30 days beginning with the date of the notice. Interest is charged on penalties paid late.

When a penalty notice is received

If not already done so, we advise that customers should do what is necessary to send in their land transaction return as soon as they can, to avoid further possible penalties. They should also pay the penalty on time, to avoid an interest charge.

Appeals against penalties for late returns

The main ground of appeal is where customers think they have a good reason why they did not send back their land transaction return in time. The law says that the only good reason is that a customer had or there is a 'reasonable excuse' for not meeting the deadline and that after the 'reasonable excuse' ceased the customer sent back the land transaction return 'without unreasonable delay'. Appeals are made to the General or Special Commissioners. The procedure requires a notice of appeal to be sent to us, providing us with full details of the grounds for appeal, including dates of when events happened. This enables us to consider whether we agree there is a reasonable excuse. If we do, there is no need for the Commissioners to consider the appeal.

We may agree there is a 'reasonable excuse' only where an exceptional event, beyond a customer's control, has prevented them sending back their land transaction return or making other arrangements to do this by the deadline. Examples of this are:

• an unforeseen event, which disrupted the normal postal service and led to a land transaction return posted in good time being lost or delayed or
• serious acute illness (or indeed death) that prevented an adviser from controlling their business and private affairs.

If a customer intends to appeal we must be given a notice of appeal, in writing, within 30 days of the date of the penalty notice. Appeals can be made in the form of a letter or using the form we send with each penalty notice. Normally, we will allow a further 14 days for a customer to send us their completed land transaction return.

Payment of penalty if an appeal is being made

To avoid any interest charge, we advise that customers may want to pay the penalty even if they are appealing against it. If the penalty is paid and the appeal succeeds, we will repay the penalty and pay interest for the period from when the penalty was paid until we repay it.

If the appeal succeeds

If the appeal succeeds so that the customer does not have to pay the penalty, then obviously no interest is payable on the penalty that was determined in the notice, because the penalty itself is treated as if it were never determined.

If the appeal does not succeed

If the appeal does not succeed and the penalty has not been paid while the appeal was being considered, interest will be charged from after the end of the period of 30 days, beginning with the date of the notice, until the day the interest is paid.

Discovery enquiries

We also have the opportunity to go back to a transaction that is outside the 9-month enquiry window. This is known as a 'discovery' enquiry. A discovery enquiry happens when it becomes clear, (through third party information or otherwise), that not enough SDLT has been paid on a land transaction and, broadly, the reason for that is either that the customer (or certain people connected with him) has acted negligently or fraudulently, or that we did not have enough information before the end of the enquiry window to know that the customer ought to have paid more SDLT.

Further information

Further information on any of the points raised above can be obtained on the Stamp Taxes website or by contacting the Stamp Taxes Helpline which is open between the hours of 8.30am to 5pm (Monday to Friday).

Other leaflets we produce that customers might find useful are:

• C/FS 'Complaints and putting things right' (PDF 264K)
• COP24 Stamp Duty Land Tax enquiries
• COP25 Stamp Duty Land Tax-enquiries into companies and partnerships
• SD1 Enquiries into land transaction returns
• SD7 Penalties for late land transaction returns