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Stamp Duty warning as renters could be forced to pay the tax – rules explained

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Stamp Duty has gained interest recently, due to the holiday on the tax granted by the Chancellor Rishi Sunak due to the ongoing COVID-19 pandemic. The levy, formally known as Stamp Duty Land Tax (SDLT) is usually due if a person buys a property or land which is over a particular price in England and Northern Ireland. At present, the SDLT threshold for residential properties stands at £500,000, but this will change on April 1, 2021.

Renters, however, who may consider themselves exempt from such a tax, may in fact have to meet the levy themselves in certain situations. 

Many tenants have been found to be unaware of their tax obligations, leaving them in for a potentially nasty surprise when SDLT arises.

A rule from 2003 means some tenants will have to pay tax on rental properties above a certain threshold. 

If the cumulative rent a person pays throughout their tenancy exceeds this threshold, then a SDLT tax bill of one percent on any amount above this threshold must be met.

At present, for residential properties this threshold sits at £125,000.

As a result, those who are paying substantial amounts of rent will need to meet this levy. 

And with instances of renting rising as homeownership falls, it is likely more people will now be subject to this little-known rule. 

However, what could be the most painful element of this rule is the penalty for non-compliance.

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If a person fails to file their return in a timely fashion, described as three months after the filing date, then they could incur a £100 fine.

Taking longer than three months could mean a penalty of £200, and up to the full amount of the tax due if the return is late by 12 months. 

And although the Stamp Duty holiday is currently being taken advantage by many, it does not apply to renting arrangements.

This is because the scope of the holiday relates to tax being lifted for buyers rather than renters. 

Those who are worried or have doubts about the tax they should be paying, are urged to take action.

If a person is close to reaching the threshold, they are encouraged to reach out to HMRC.

The Revenue will be able to offer further advice on the amount which needs to be paid, and how the tax should be met

In addition, renters can also seek to approach a financial adviser. 

It is likely these individuals will be able to provide advice related to a person’s specific circumstances. 

Additionally, the government’s SDLT calculator can offer further guidance.

The tool allows Britons to answer a series of questions relating to the status of their lease and the amount of rent they pay.

It will then show a figure of how much tax is actually due. 

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