Advanced Taxation (UK) · Income tax: property and investment income

Interest on Tax, Penalties and Stamp Taxes on Investments

Updated 11 October 2026 · Fact-checked

Use the ATX-UK tax tables. Interest on underpaid tax is 8.50% and on overpaid tax 3.50%. The official rate for beneficial loans is 3.75%. Stamp duty on shares is 0.5%. Non-residential SDLT is a slice system: 0% to £150,000, 2% to £250,000, 5% above. Calculate each slice, then add.

Understand Interest on Tax, Penalties and Stamp Taxes on Investments

This topic is about small cost items that change a client's final numbers. They are easy marks if you know which rate belongs where. They are also easy to lose if you mix the rates up.

There are three groups. Interest on tax is a charge or a credit based on the time between the due date and the actual payment date. Stamp duty on shares is a tax on the buyer when shares are bought. Stamp duty land tax (SDLT) is a tax on the buyer of land and buildings in England and Northern Ireland. Here you only need the non-residential rates.

The tax tables give you three interest rates. The official rate (3.75%) is used to measure the taxable benefit of a cheap or interest-free employment loan. The rate on underpaid tax (8.50%) is what HMRC charges you when tax is paid late. The rate on overpaid tax (3.50%) is what HMRC pays you on a repayment. Notice that HMRC charges more than it pays. This matters in planning advice, because paying late is never a cheap way to borrow.

Stamp duty on shares is a flat 0.5% of the consideration. SDLT on non-residential property is different. It is charged in slices, like income tax bands. Only the part of the price inside each band bears that band's rate. It is not a single rate applied to the whole price.

In the exam these items rarely stand alone. They appear inside a bigger scenario: a client buys shares, buys a business premises, or pays tax late. You are expected to add the cost to your advice, compare options, and show the cash effect.

Key rules to remember

Official rate of interest: Rate = 3.75%; Used for the benefit on a beneficial employment loan. The tax tables give the rate as assumed for the exam.
Interest on underpaid tax: Interest = Tax unpaid × 8.50% × (days late ÷ 365); Runs from the due date to the date of payment. Not a tax-deductible cost in the exam unless told otherwise.
Interest on overpaid tax: Interest = Tax overpaid × 3.50% × (days ÷ 365); HMRC pays this on repayments. The rate is lower than the underpaid rate.
Stamp duty on shares: Duty = Consideration × 0.5%; Paid by the buyer. Apply the rate to the price paid.
SDLT on non-residential property: SDLT = 0% × first £150,000 + 2% × (£150,001 to £250,000) + 5% × excess over £250,000; A slice system. Each rate applies only to the part of the price in that band.
Standard penalties for errors: Careless: max 30%, min 0% unprompted, 15% prompted. Deliberate not concealed: max 70%, min 20% unprompted, 35% prompted. Deliberate and concealed: max 100%, min 30% unprompted, 50% prompted.; Applied to the extra tax due because of the error. The tax tables give these percentages.

How to solve Interest on Tax, Penalties and Stamp Taxes on Investments questions

Follow the same routine for any question on interest, penalties or stamp taxes.

1Identify which charge is being asked for: official rate, underpaid interest, overpaid interest, stamp duty on shares or SDLT.
2Pick the right rate from the tax tables. Do not rely on memory for the rates.
3Identify the base: share price, property price, tax unpaid, or loan balance.
4For SDLT, split the price into the three bands and compute each slice separately.
5For interest, find the start date and end date and count the days or months. Say what you assume.
6Calculate, round sensibly, and label each line.
7State who pays (the buyer for stamp taxes) and add the cost to the overall result or comparison.
8Finish with a short comment if the question asks for advice, such as the cash cost of paying late.

Quickest way: Slice-and-add for SDLT, flat rate for shares

When to use it: Use it when the question gives a purchase price and asks for the stamp tax cost, with little time to spare.

For shares, multiply the price by 0.5%.
For non-residential SDLT, if the price is up to £150,000, the answer is nil.
If the price is between £150,000 and £250,000, SDLT = (price − £150,000) × 2%.
If the price is above £250,000, SDLT = £2,000 + (price − £250,000) × 5%. The £2,000 is 2% of the middle £100,000 slice.
Write the formula lines in your answer so you can pick up method marks even if the arithmetic slips.

Common mistakes in Interest on Tax, Penalties and Stamp Taxes on Investments

Applying 5% to the whole non-residential property price.
Students treat SDLT as a single rate, as stamp duty on shares is.
Fix: Treat SDLT as bands. Only the part above £250,000 bears 5%, and the first £150,000 bears nothing.
Using the official rate (3.75%) for late-paid tax.
All three interest rates sit together in the tax table and look alike.
Fix: Write the purpose beside each rate: 3.75% beneficial loans, 8.50% underpaid tax, 3.50% overpaid tax.
Mixing up the underpaid and overpaid interest rates.
Students assume HMRC pays and charges the same rate.
Fix: HMRC charges 8.50% and pays 3.50%. Check whether the taxpayer owes or is owed.
Charging stamp duty at 0.5% on shares sold, to the seller.
Students remember the rate but forget who bears the cost.
Fix: Stamp duty on shares is paid by the buyer. Include it in the buyer's cost only.
Applying the careless penalty percentage to the full tax liability.
Students forget what the penalty is based on.
Fix: Apply the penalty to the extra tax due because of the error, and pick the percentage that matches the behaviour and the type of disclosure.
Counting interest for a whole year when the delay was only a few months.
Students quote the annual rate and forget to time-apportion it.
Fix: Multiply by days late ÷ 365, or months ÷ 12 if the question works in months.

Worked examples

Example 1

Meera buys a non-residential office building for £320,000. Calculate the SDLT payable. Then calculate stamp duty if she separately buys shares in an unquoted company for £48,000.

Show the solution

SDLT on the first £150,000: £150,000 × 0% = £0.
SDLT on the next £100,000 (£150,001 to £250,000): £100,000 × 2% = £2,000.
SDLT on the excess over £250,000: (£320,000 − £250,000) = £70,000 × 5% = £3,500.
Total SDLT = £0 + £2,000 + £3,500 = £5,500.
Stamp duty on the shares: £48,000 × 0.5% = £240.

Answer: SDLT is £5,500 and stamp duty on the shares is £240. Meera pays both as the buyer.

Example 2

Rahul should have paid £12,000 of income tax on 31 January but paid it 73 days late. He also overpaid a different year's tax by £2,000 and HMRC repaid it with interest for 146 days. Calculate the interest charged to Rahul and the interest paid to him.

Show the solution

Interest on underpaid tax: £12,000 × 8.50% × 73 ÷ 365.
73 ÷ 365 = 0.2, so interest = £12,000 × 8.50% × 0.2 = £204.
Interest on overpaid tax: £2,000 × 3.50% × 146 ÷ 365.
146 ÷ 365 = 0.4, so interest = £2,000 × 3.50% × 0.4 = £28.
Net effect: £204 charged less £28 received is £176 net cost.

Answer: Rahul is charged £204 on the late payment and receives £28 on the repayment, a net cost of £176.

Exam tips

Open the tax tables and tick off the rates you use. Never quote a rate from memory.
Show SDLT as three labelled slices. Markers award method marks for each band.
In planning questions, add the stamp tax to the cost of each option before you compare them.
State your day-count assumption for interest. It earns marks even if the end date is debatable.
Link advice to cash flow. Say that paying late costs 8.50% while HMRC pays only 3.50% on overpaid tax.

Practice questions from Income tax: property and investment income

Interest on Tax, Penalties and Stamp Taxes on Investments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CS ProfessionalIndian Stamp Act, 1899: Stamp Duty and Instruments

Interest on Tax, Penalties and Stamp Taxes on Investments: frequently asked questions

What is the SDLT rate on non-residential property in ATX-UK?

It is 0% up to £150,000, 2% on the slice from £150,001 to £250,000, and 5% above £250,000. Each rate applies only to the part of the price in that band.

What is the stamp duty rate on shares?

The rate in the tax tables is 0.5%. It is charged on the consideration, and the buyer pays it.

How is interest on late paid income tax calculated?

Multiply the unpaid tax by 8.50% and by the fraction of the year it was late. The period runs from the due date to the date of payment.

What is the official rate of interest used for?

It is used to measure the taxable benefit on a cheap or interest-free loan from an employer. The tax tables give 3.75% as the assumed rate.