Do You Have to Pay Tax?
When renting a residential property in the UK, the tenant must pay Stamp Duty Land Tax (SDLT) if the rent is over a certain rental amount in England and Northern Ireland, Land and Buildings Transaction Tax (LBTT) in Scotland, or Land Transaction Tax (LTT) in Wales (as of 1st April 2018).
The value thresholds are £125,000 in England and Northern Ireland, £145,000 in Scotland, and £180,000 in Wales (as of 1st April 2018).
The Value SDLT/LBTT/LTT is Paid on (The ‘Consideration’)
The total value the tenant pays SDLT/LBTT/LTT on (sometimes called the ‘consideration’) is usually the total rent for the duration of the tenancy.
If the tenancy is for 12 months then the consideration is the annual rent.
If the tenancy is for 12 months and then renewed for another 12 months, an additional SDLT/LBTT/LTT return must be filed with HMRC/Revenue Scotland/Welsh Revenue Authority and the additional tax paid. This is known as a linked lease (see below).
How Much to Pay
HM Revenue and Customs (HMRC) has a Stamp Duty Land Tax calculator to work out how much tax is due in England or Northern Ireland.
For property in Scotland, use Revenue Scotland's Land and Buildings Transaction Tax calculator.
For property in Wales, use the Welsh Revenue Authority's Land Transaction Tax calculator.
SDLT Rates (England and Northern Ireland)
| Value of Rent | SDLT Rate |
|---|---|
| Up to £125,000 | 0% |
| Above £125,000 to £250,000 | 2% |
| Above £250,000 to £925,000 | 5% |
| Above £925,000 to £1.5 million | 10% |
| Over £1.5 million | 12% |
Example
If a property is rented for 2 years and the total rent payable over the 2 years is £275,000, the SDLT the tenant owes is calculated as follows:
0% on the first £125,000 = £0
2% on the next £125,000 = £2,500
5% on the final £25,000 = £1,250
Total SDLT = £3,750
LBTT Rates (Scotland)
| Value of Rent | LBTT Rate |
|---|---|
| Up to £145,000 | 0% |
| Above £145,000 to £250,000 | 2% |
| Above £250,000 to £325,000 | 5% |
| Above £325,000 to £750,000 | 10% |
| Over £750,000 | 12% |
Example
If a property is rented for 2 years and the total rent payable over the 2 years is £275,000, the LBTT the tenant owes is calculated as follows:
0% on the first £145,000 = £0
2% on the next £105,000 = £2,100
5% on the next £25,000 = £1,250
Total LBTT = £3,350
LTT Rates (Wales)
| Value of Rent | LTT Rate |
|---|---|
| Up to £180,000 | 0% |
| Above £180,000 to £250,000 | 3.5% |
| Above £250,000 to £400,000 | 5% |
| Above £400,000 to £750,000 | 7.5% |
| Above £750,000 to £1.5 million | 10% |
| Over £1.5 million | 12% |
Example
If a property is rented for 2 years and the total rent payable over the 2 years is £275,000, the LTT the tenant owes is calculated as follows:
0% on the first £180,000 = £0
3.5% on the next £70,000 = £2,450
5% on the next £25,000 = £1,250
Total LTT = £3,700
Linked Leases
When a tenancy term is followed by one or more related terms (e.g. if the lease runs for 12 months and is then renewed for another 12 months), they are classed as linked transactions.
If the tenancy is for 12 months and SDLT/LBTT/LTT has been paid, and then the tenancy is renewed for another 12 months, an additional SDLT/LBTT/LTT return must be filed with HMRC, Revenue Scotland or the Welsh Revenue Authority and the additional tax paid.
If the tenancy is for 12 months and no SDLT/LBTT/LTT is due as the consideration is below the SDLT/LBTT/LTT threshold, and then the tenancy is renewed for another 12 months so that the total rent for the 24 months exceeds the SDLT/LBTT/LTT threshold, an SDLT/LBTT/LTT return must be filed with HMRC, Revenue Scotland or the Welsh Revenue Authority and the additional tax paid.
How and When to Pay
An SDLT/LBTT/LTT return must be sent to HMRC/Revenue Scotland/Welsh Revenue Authority (paper or online) and the tax paid within 30 days of the tenancy start or date that triggers an SDLT/LBTT/LTT liability in the event of linked leases.
The tenant may be charged penalties and interest if they don’t file the return and make payment within 30 days of the tenancy start.
You can complete the HMRC SDLT return and pay online here for England or Northern Ireland. You will need a Government Gateway account. If you do not have one you can open one on this page.
You can complete the Revenue Scotland LBTT return and pay online here for Scotland. You will need an account. If you do not have one you can register as a new user on the page.
For property in Wales, individuals cannot submit a return online but can instead download a paper return.
A Word on Net Present Value
The amount used to calculate the tax liability is called the “Net Present Value” (NPV) which works out to be slightly less than the actual rent.
The relevant calculators above will work out the NPV for the purpose of calculating any liability but it is much simpler to use the actual rent values when trying to ascertain any potential liability rather than work out the NPV yourself.
If you would like any support in assessing any property tax liabilities for your employees in UK rental accommodation in order to remain compliant, please contact us using the button below.