SDLT being charged on the VAT element of a purchase price or rent is fundamentally unfair – it is a tax on a tax.
In addition, whenever the VAT rate changes it is not clear how SDLT should be operated or charged. There is currently considerable confusion amogst practitioners over how SDLT should be paid before the increase in the VAT rate to 20% next January. According to HMRC, a strict interpretation of the SDLT legislation will mean considerable disadvantage for taxpayers, inluding those who have already paid SDLT over the last 4 to 4 1/2 years. HMRC will not be in a position to publish guidance for a while either.
This problem leads to uncertainty and a lack of faith in the tax system. Although I recognise that the Treasury is currently attempting to increase its revenues, and a cut in SDLT revenue would not necessarily be welcome in this regard, this wrinkle in the rules should be removed to give taxpayers certainty and a sense of fairness about how SDLT works.