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Do Your Tenants Owe Stamp Duty?

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Property-Tax

You pay stamp duty when you buy a house - so we were really surprised when PDPLA member, Debra Chappelow, pointed out a little known rule which means long term tenants may be liable to pay stamp duty. 

What Happened? 

In Debra's case, she had a tenant who had been with her for over 15 years and if the tenancy had not been updated with a brand new AST in 2018, the tenant would have been liable for stamp duty and, as Debra says, "our tenant least likely to be able to pay the tax" .

So What Is The Rule? 

London lettings agency Benham and Reeves says that it is widely believed that stamp duty land tax is paid only by owners of properties.

But in reality since 2003 residential tenancies have had the potential to be liable for SDLT - although only those tenants where the cumulative rent adds up to £125,000.

In other words when a tenant has, under a continuous or successively-linked lease, paid more than £125,000 in rent, they are required to start contributing to SDLT.

They are required to pay one per cent of the rent value as an annual tax.

Benham and Reeves says this tax must be paid separately from the rent payments via a declaration form SDLT1 to the Inland Revenue within 30 days of the date the tenancy commenced or the date the lease was executed, whichever is earlier.

While £125,000 may sound like a huge amount, a typical Southsea 3-bed terrace will pay that much in rent over a 10-year period, so if you have long tenancies do check whether your tenants may fall foul of this rule and consider new AST's where appropriate.

The agency says that with more people renting for longer portions of their lives, SDLT payments could become a more pressing concern for tenants as the cumulative years in a tenancy agreement start to pile up.

As such, all tenants need to make sure they know one very important thing: when their tenancy agreement comes to be renewed, is the renewed contract linked to the previous one rather than it being considered an entirely new agreement?

If so, the SDLT threshold could soon be reached and they could be liable to pay tax. 

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About the author

Martin Silman

Martin began his landlord journey 30 years ago, while working in an international role for a global telecommunications company. Since retiring he has extended his portfolio, which he manages with his wife, but has always focussed on the ‘small student HMO’ sector preferring to offer homes in the community for small groups to the more common ‘pack them in and take the money’ mentality. He has chaired the PDPLA for the past 12 years and has overseen the Associations transition from small local self-help group to a much larger and more professional institution which is recognised and listened to nationally. Alongside his PDPLA role, he also has leadership roles in a number of other local organisations – bringing his unique perspective, driving for change and increased use of technology while respecting the history that brought us here.

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