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 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 £1,800 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 which may be over the threshold so you could be be liable for SDLT tax plus fines as they should be paying the SDLT every year from the date they exceeded the threshold.

In order to calculate the tax payable you need to work out the “Net Present Value” of the rent over the term of the lease. The formula for this is quite complicated.

In this example the net present value of the rent would be £194,433 and the tax payable would be £694. 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

Net present value of rent £194,433
Exempt £125,000
Liable for SDLT = £69,433
Payable SDLT 1% = £694 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.

GOV.UK have put together an 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. The net present value calculations and SDLT1 form is quite complicated and we would recommend a tenant seeks expert help with filling it in.