Stamp Duty Land Tax (SDLT) is a key element of property transactions in the UK. While it may not be possible to avoid paying Stamp Duty Land Tax altogether, there may be ways to reduce Stamp Duty Land Tax liability.
Property transactions in the UK may be subject to Stamp Duty Land Tax. However, there are some Stamp Duty reliefs and exemptions that may help you reduce your SDLT liability when making a property purchase.
In this blog we’ll explain SDLT in more detail and offer our tips and advice on reducing the SDLT payable.
Stamp Duty Land Tax (SDLT) is a tax charged by the UK government on property transactions in England and Northern Ireland.
In Scotland, you pay Land and Buildings Transaction Tax (LBTT), and in Wales, you pay Land Transaction Tax (LTT).
These taxes are paid on the acquisition of land and/or property with a value greater than a certain threshold. SDLT is calculated on a sliding scale based on the total purchase price of the property (i.e. different rates are charged for each portion of the purchase price falling within specific price bands).
How much tax you pay will be determined by whether the land or property is residential, non-residential, or mixed purpose and whether it is your main residence or an additional property.
The amount you pay depends on:
There are SDLT reliefs and exemptions, which you should also be aware of (see below).
SDLT is charged on the purchase of residential properties (e.g. your main home, a second home or a buy-to-let rental property) worth over £125,000.
Your conveyancer or solicitor should file an SDLT return to HMRC and pay any SDLT due on the day of completion on your behalf. Your solicitor or conveyancer should also claim any tax relief that you might be eligible for.
If you don’t have a solicitor or conveyancer, you will have to ensure that you file the stamp duty return and pay the tax directly yourself.
First-time buyers pay SDLT if they purchase a property or land worth over £300,000.
Other circumstances under which you may have to pay SDLT include:
There is an SDLT surcharge, known as Higher Rate Stamp Duty Land Tax, that will be applied in the following circumstances:
However, in some circumstances, a Stamp Duty refund may be available.
You pay SDLT at the rates below if it is your only residential property.
Property or lease premium or transfer value SDLT rate
In addition to the standard Stamp Duty charges, a 5% surcharge is applied if:
If you have not sold your main residence on the day you complete your new property purchase, you’ll have to pay higher rates of SDLT. This is because you own two properties. However, you may be later eligible for refund (see below).
If you are buying an additional property that is not your main residence or investment property, you will likely need to pay Stamp Duty. You will be required to pay a 5% surcharge on second and subsequent properties, even if the additional property you are purchasing falls within the lowest Stamp Duty price band, where Stamp Duty is 0%.
Some situations can be exempt from Stamp Duty; these include:
It is hard to avoid Stamp Duty altogether on a property purchase. However, there are ways that home buyers and property investors can reduce SDLT.
The more you pay for a property, the more Stamp Duty you will be liable for. Therefore, the cheaper the property, the less SDLT you will pay. For first-time buyers, purchasing property under the £300,000 threshold could mean you pay no Stamp Duty at all.
Negotiating a lower purchase price will reduce the Stamp Duty owed on residential property purchases.
Some builders and developers may offer discounts and deals to attract buyers. For example, the developer may offer to pay the Stamp Duty for you.
You may be able to secure a lower price by buying off-plan, thereby reducing the SDLT payable. Buying off-plan means that you will be expected to complete the purchase while the development is still in the planning or construction phase.
Developers will often sell off-plan properties at a discounted rate compared to general new builds. SDLT is calculated based on the actual amount paid rather than the property’s market value. So, buying off-plan can minimise stamp duty liability.
If an item is considered to be a fixture, it is taxable. However, in certain circumstances, some items may be classed as a ‘chattel’ and SDLT will not apply.
The following items are classed as chattels:
The following items will be classed as fixtures or fittings and SDLT will be payable on their value.
If you are purchasing a second-hand property, you could make an offer to pay for fittings separately, which will be classified as chattels to reduce your Stamp Duty liability. This must be done on a ’just and reasonable basis’.
Seek expert advice before making arrangements with the sellers to ensure they qualify as ’chattels’ and not fixtures and fittings.
Valuable reliefs and refunds could dramatically reduce your SDLT liability. Reliefs will reduce the amount of Stamp Duty you have to pay.
You can apply for a Stamp Duty refund if you sell your main residence within three years of completing the purchase of another property.
The refund is for the 3% additional surcharge you will have paid on the purchase of the second property.
There can be a variety of reasons that you must pay the 3% surcharge in the first place, for example:
SDLT legislation can be complex to understand. Unfortunately, Stamp Duty is often unavoidable for many individuals and especially for property investors and landlords. While you may not be able to avoid a hefty Stamp Duty bill, there are plenty of other ways to reduce SDLT. At dns accountants, we have a substantial team of property and tax experts who can advise and assist you with all your SDLT queries. We can help you buy property tax-efficiently, claim relief, apply for SDLT refunds, and assist you in meeting your financial goals.
Any questions? Schedule a call with one of our experts.
Sumit Agarwal Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.
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