Stamp Duty Land Tax is basically a tax on the sale of a property. It is more commonly known just as Stamp Duty and, technically, is only payable in England and Northern Ireland.
In actual fact, Scotland and Wales both have their own version of it. These are known as Land and Buildings Transaction Tax and Land Transaction Tax respectively. The basic principles behind these taxes are essentially the same; however, the exact workings are different.
This article covers the basics of Stamp Duty Land Tax as applied in England and Northern Ireland.
Stamp Duty Land Tax – the basic rate
The basic rate of SDLT is applied to purchases of residential property when the buyer intends to use the property as their main home. The current bandings are as follows:
£0 – £125,000 0%
£125,001 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1.5m 10%
£1.5m+ 12%
SDLT is a progressive tax, which means that it works much the same way as income tax. For example, if you buy a property for £500K then you pay nothing on the first £125K, 2% on the next 125K and 5% on the remainder of the purchase price.
Stamp Duty Land Tax – the additional-homes rate
£0 – £125,000 0%
£125,001 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1.5m 10%
£1.5m+ 12%
The additional-homes rate was billed as an investor surcharge, essentially a means of “levelling the playing field” between investment buyers and first-time buyers.
Unfortunately for many residential buyers, it is applied in any case where the buyer already owns a property, even if they intend to sell it. In other words, it also catches people who want to buy a new home before they sell their old one.
To be fair, residential buyers in this situation can apply to have the surcharge refunded. They do, however, have to remember to apply for the refund; it will not be applied automatically upon the sale of the original property. You only have 3 months from the date of completion in which to do this, so it’s important to be prompt! You may also have an exception from the additional-homes rate if you inherit property or have it transferred to you as part of a settlement relating to the ending of a legally-recognized partnership.
Stamp Duty Land Tax – the first-time buyers’ discount
£0 – £300,000 0%
£300,001 – £500,000 5%
First-time buyers looking at shared-ownership properties should be aware that the SDLT relief only applies to the initial purchase and not to any equity they subsequently purchase. In other words, even though the property may be their first home, they will no longer be first-time buyers.
Joint purchases
While there may be some exceptions to this, if you are contemplating making a joint purchase, then you should expect to pay the least-favourable rate of SDLT. For example, if one of you has an additional property and the other does not, you should expect to pay the additional-homes rate and likewise if one of you is a first-time buyer and the other is not, you should expect to pay the standard rate (or even, potentially, the additional-homes rate).
This post was submitted by Indlu, estate agents in Manchester offering a no sale, no fee estate agency service in the North West as well as a free online house price estimate to find out how much your house is worth.