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Stamp Duty Land Tax (SDLT) for tenants

A tenant has to pay Stamp Duty Land Tax (SDLT) once the cumulative rent exceeds £125,000

This is a little known fact that few people including a lot of agents and many at HMRC wither aren’t aware of or don’t know the actual rules. So if you are a tenant and make a rental property your home for the long term and you aren’t careful then you could land yourself with an annual tax bill and penalties if you don’t pay the taxes.

The threshold for not paying the tax is £125,000 which seems a lot but not if you live there for a long time as the UK Government want to encourage now with longer term tenancies

Here’s an example - if someone rents in London and pays the average London rent of £1800 per month, that’s £21,600 a year. So if they lived in the same property for 10 years then the total rent over that period would be £216,000. Tax is therefore due on £91,000 so you’d be liable for SDLT tax of £910 plus fines as they should be paying the SDLT every year from the date they exceeded the threshold.

In this example the tenant would need to start paying tax from year 6 – when the cumulative rent exceeds the threshold, so in year 6, the total would be £129,600 which is £4,600 over the threshold meaning a tax of £46. This isn’t a lot but it can build a lot with HMRC fines if you don’t pay it each year!

SDLT due by a Tenant, based on 10 years at the average London rent

Total cumulative rent £216,000
Exempt £125,000
liable for SDLT = £91,000
Payable SDLT 1% = £910 PLUS fines which could be very significant

This example assumes that when the tenant renews the tenancy, the renewal terms are linked to the old tenancy.

Benham and Reeves have put together a simple SDLT Calculator below for tenants to work out their liability.

So the key question is “What do I do to avoid paying SDLT”

Well its actually quite simple, you negotiate a new tenancy on different terms each year, even though the landlord is the same and the tenant is the same. Then the new and old tenancies wouldn’t be linked.

Each ‘new’ tenancy would mean SDLT would start counting from zero up until the start of the next new tenancy.

Warning - a tenant must complete and submit a declaration form SDLT1 to HMRC AND pay the SDLT due within 30 days of the start of the tenancy, or risk a big fine.

HMRC website is really not helpful at all and its nigh on impossible to find any guidance. There is a useful SDLT calculator on the HMRC website however it is solely aimed at the SDLT due on a purchase NOT on rent. The premium is the purchase price of a long lease on a leasehold property and so it doesn’t apply to cumulative rents. The Benhams simple SDLT Calculator is below to help tenants work out their SDLT liability easily.

The SDLT1 form is quite complicated and we would recommend a tenant seeks expert help with filling it in. Benham and Reeves can refer a tax advisor to assist with this if required.

Stamp Duty calculator for tenants on long let tenancies in London and the whole of the UK

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How the Stamp Duty Land Tax for tenants is calculated:

Threshold
£125,000
Rent liable for SDLT
SDLT
1%
Tax payable
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