stamp duty

Stamp Duty is an unavoidable tax.  Make sure you understand what it is, who pays it, and how much needs to be paid so you don’t get caught out.

What is Stamp Duty?

Stamp Duty is a tax which has been around in one form or another since the 17th Century. It got its name because of the actual stamp that was placed on the document recording the purchase.

Who pays it?

Today its formal title is the Stamp Duty Land Tax (SDLT) – but customarily shortened to Stamp Duty. Anyone in England or Northern Ireland buying a residential property – which is to be their main residence – for more than £125,000 must pay it.

In Scotland, it is called the Land and Buildings Transaction Tax (LBTT) and in Wales the Land Transaction Tax (LTT), but the principles are broadly the same.

In England and Northern Ireland, the amount of SDLT you pay after the initial allowance of £125,000 is:

  • 2% on properties bought for between £125,000 and £250,000
  • 5% on those with a market value of £250,000 to £925,000
  • 10% on those between £925,000 and £1.5 million, and
  • 12% on any property worth more than £1.5 million.

 

Exceptions do apply – which we discuss further on.

As there are variations as to the amount of Stamp Duty due depending on where the property is purchased, we will focus on the rules for England and NI.  You can visit the Scottish Government website here. And the Welsh Government website here for more information on property purchase tax.

Stamp Duty – second homes and property investors

SDLT is paid whenever you buy the freehold of a property intended as your main home.

If you’re buying a property in addition to the one you live in – as a second home, a buy to let property, or an investment property – you pay an additional surcharge equal to 3% of the regular SDLT on the transaction on any purchase of £40,000 and over.

For leasehold properties, if it is a new lease, you pay standard SDLT on the purchase price of the lease (it’s so-called “lease premium”).

For an existing lease, basic SDLT is calculated according to the total rent paid over the life of the lease (it’s so-called “net present value”), plus a further 1% on any amount over £125,000.

If it is an “assigned” lease (assigned to you from the previous owner), SDLT is calculated according to the amount you paid for the assignment of the lease.

Rates for non-residential and mixed land and property

Again, the SDLT rates here differ – it is paid on increasing portions of the property price (or ‘consideration‘) when you pay £150,000 or more for non-residential or mixed (also known as ‘mixed-use’) land or property.

Relief from Stamp Duty

The already complex calculation of Stamp Duty is further complicated by the long list of exemptions and relief from the tax.

Probably the most important is the relief for first-time buyers who pay no Stamp Duty on the first £300,000 on any property up to a limit of £500,000. So, they only pay at the standard rate of 5% on any property between £300,000 and £500,000. First-time buyers of property worth more than £500,000 do not qualify for any relief.

SDLT is also NOT payable on moveable items (known as “Chattel” that are included in the sale – such as carpets and white goods etc).

Calculating Stamp Duty

It’s probably clear by now that the calculation of Stamp Duty on any particular property transaction is likely to be complicated – by the varying rates of the tax, the type of transaction, the type of buyer, and the reliefs and exemptions available.

On completion of the property transaction, a Stamp Duty declaration must be filed with HM Revenue & Customs (HMRC).

Typically, this form will be completed by your solicitor or conveyancer. So it may pay you to instruct an accountant to advise them accordingly to ensure you are getting any relief allowed (such as for any moveable goods included in the sale).

Stamp Duty after the 2020 Spring Budget

The only change to Stamp Duty announced during the 2020 Spring Budget was the introduction of a further 2% surcharge on UK homes bought by those resident overseas.

This is on top of the 3% surcharge that already applies to those buying second homes or investment properties.

So, an overseas resident buying a UK home worth more than £1.5 million will pay a total of 17% (12%+3%+2%) on the purchase price in Stamp Duty.

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