How to reduce your SDLT liability when buying property

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.

What is Stamp Duty Land Tax SDLT and how does it work?

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:

• When you bought the property
• How much you paid for it
• Whether you’re eligible for relief or an exemption

There are SDLT reliefs and exemptions, which you should also be aware of (see below).

Who pays Stamp Duty Land Tax?

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:

• You marry and buy a property with your partner, even if one of you is a first-time buyer.
• You purchase a shared ownership property.
• You buy a non-residential property for more than £150,000.
• You purchase mixed-use land or property valued at £150,000 or more.
• You’re added to a mortgage and title deeds (in this case, you will be classed as "buying" a share of property or land).

There is an SDLT surcharge, known as Higher Rate Stamp Duty Land Tax, that will be applied in the following circumstances:

• You purchase a second property or residence.
• You’re an individual private landlord and you purchase a buy-to-let property.
• You purchase a buy-to-let through a limited company.

However, in some circumstances, a Stamp Duty refund may be available.

Stamp duty rates

Rates for a single property

You pay SDLT at the rates below if it is your only residential property.

Property or lease premium or transfer value SDLT rate

Stamp duty surcharge for additional dwellings

In addition to the standard Stamp Duty charges, a 5% surcharge is applied if:

• You purchase buy-to-let property as a private landlord or through a limited company.
• You purchase a second home for £40k or more.
• You already own or buy multiple properties.

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).

Can I avoid paying stamp duty on investment property?

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%.

Am I eligible for Stamp Duty exemption?

Some situations can be exempt from Stamp Duty; these include:

• First-time buyers buying a property for less than £300,000.
• Building or construction companies buying an individual’s home.
• Employers buying an employee’s house.
• Local authority compulsory purchases.
• Property developers who provide amenities to communities.
• Companies transferring property to another company.
• Charities purchasing a property for charitable purposes.
• Right-to-buy properties.
• Registered social landlords.
• Crown employees.

Tips to reduce stamp duty liability

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.

1. Buy cheaper property

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.

2. Negotiate the property price

Negotiating a lower purchase price will reduce the Stamp Duty owed on residential property purchases.

3. New build offers and discounts

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.

4. Buy off-plan

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.

5. Pay for extras separately

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:

• Carpets (fitted or otherwise)
• Curtains and blinds
• Free-standing furniture
• Kitchen white goods – unless fully integrated
• Electric and gas fires (if they can be removed and disconnection from the power supply without causing damage to the property)
• Light shades and fittings (unless recessed).

The following items will be classed as fixtures or fittings and SDLT will be payable on their value.

• Fitted kitchen units, cupboards and sinks
• Agas and wall-mounted ovens
• Fitted bathroom sanitary ware
• Central heating systems
• Intruder alarm systems.

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.

6. Apply for SDLT reliefs available and Stamp Duty refunds

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:

• The sale of your main residence is delayed or falls through, but you continue to buy your new home before you complete the sale of your old home.
• You may own two homes for a period because of separation or divorce
• You purchase a second home as a holiday home, then decide to move permanently into that home and sell your previous main residence.
• You own a home and decide to rent it out when you buy a shared new home with a new partner.

Summary

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.

About the author

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.