When buying a property, the biggest tax cost will be Stamp Duty Land Tax (SDLT).
Tax rates such as Stamp Duty Land Tax often change, so before buying a residential property, you should familiarise yourself with Stamp Duty rates, reliefs and exemptions and calculate how much you need to pay.
In this blog, well explain all you need to know about Stamp Duty rates for various scenarios.
What is stamp duty land tax?
Lets start with the basics of what Stamp Duty Land Tax is.
Individuals must pay Stamp Duty Land Tax (SDLT) if they buy a property or land over a certain price in England and Northern Ireland. There are different rules and taxes for Scotland and Wales as per below.
- Scotland - pay Land and Buildings Transaction Tax (LBTT).
- Wales - pay Land Transaction Tax.
You pay the tax when you:
- Buy a freehold property
- Buy a new or existing leasehold
- Buy a property through a shared ownership scheme
- are transferred land or property in exchange for payment, for example you take on a mortgage or buy a share in a house
Stamp duty land tax thresholds
There is an allowance called a threshold whereby if your property purchase price is less than the threshold, there will be no Stamp Duty to pay.
The thresholds for 2023/24 are:
- £250,000 for residential properties
- £425,000 for first-time buyers buying a residential property worth £625,000 or less
- £150,000 for non-residential land and properties.
How much Stamp duty will I pay?
The rules are a little more complicated around how much Stamp Duty you will pay as there are different rules for residential property in England and Northern Ireland and it will depend on whether the land or property will be used as a residential property, non-residential property or mixed-use property. It will also depend on whether you are eligible for any reliefs or exemptions.
There are also different rates of SDLT if you are one of the following:
- You’re a first-time buyer
- You already own a property and you’re buying an additional property that is not your main residence
- You’re an overseas buyer and not a UK resident
Stamp duty rates 2023
Below are the normal Stamp Duty rates for 2023 if you are purchasing a main residence in England and Northern Ireland.
Property price Stamp Duty rate
- £0 - £250,000 0%
- £250,000 - £925,000 5%
- £925,000 - £1,500,000 10%
- Over £1.5 million 12%
How much Stamp duty do First Time Buyers pay?
First-time buyers may qualify for first-time buyer relief. If you are a first-time buyers in England or Northern Ireland, you pay no Stamp Duty on properties up to a value of £425,000.
Here are the first-time buyers rates of Stamp Duty:
Property price Stamp Duty rate:
- £0 - £425,000 0%
- £426,000 to £625,000 0% on the first £425,000 then 5% on value from £425,000 to £625,000
- £625,000 and above You will pay standard rates of Stamp Duty as you wont qualify for first-time buyer relief.
SDLT rates on buy-to-let properties, second homes and additional property purchases
If you’re buying additional property over and above your main residence, such as a second home or a buy-to-let property you’ll have to pay an extra 3% in Stamp Duty on top of the standard rates.
This increased rate applies to properties bought for £40,000 or more. It doesn’t apply to caravans, mobile homes or houseboats.
Property price Stamp Duty rate
- £0 - £250,000 3%
- £250,000 - £925,000 8%
- £925,000 - £1,500,000 13%
- Over £1.5 million 15%
Do I need to pay the higher rate of SDLT?
Higher rates for additional properties and the main residence exemption
The stamp duty land tax (SDLT) higher rates do not apply where a transaction is the replacement of an individual’s only or main residence.
There is no definition of a main residence in the SDLT legislation and unlike capital gains tax it is not possible to nominate which property is a main residence.
You must pay the higher SDLT rates when you buy additional residential properties (or a part of one) for £40,000 or more if all the following applies:
- it will not be the only residential property worth £40,000 or more that you own (or part own) anywhere in the world.
- you have not sold or given away your previous main home.
- no one else has a lease on it which has more than 21 years left to run.
How does this affect your main residence?
You will be exempt from the higher rates if you are replacing your main home, which is being sold. If, at the end of the day of the transaction, an individual owns 2 or more properties and has not replaced their main residence, the higher rates will apply.
You can apply for a repayment of the higher rates of SDLT for additional properties if you’ve sold what was previously your main home if you’re either the:
- main buyer of the property which was charged at the higher SDLT rate.
- An agent acting for them.
You must have sold your previous main residence within 3 years of buying the new property to qualify for a refund unless exceptional circumstances apply.
How do I get my SDLT refund?
The SDLT surcharge paid on a property can be claimed for a refund where:
- You use/intend to use the property bought as your only or main residence.
- You sell a property within three years beginning with the day after the effective date of the transaction of purchase of the new property.
- The property that was used as your only or main residence at any time during the period of three years ending with the effective date of the transaction of purchase of the new property.
All the above criteria for an SDLT refund must be met.
Higher rate SDLT for married couples and civil partnership
It’s important to note that married couples, or those in civil partnerships, are treated as a single person by HMRC for SDLT purposes.? The rules apply to you both as if you were buying the property together, even if you’re not.
If either of you individually has to pay the higher rates, you must pay the higher rates for the transaction as a whole (unless you’re permanently separated).
Unmarried couples are treated individually for SDLT purposes by HMRC.
Buying with someone else
The rules apply to each person (and their spouse) who is buying the property.
If any of you individually have to pay the higher rates, you must pay the higher rates for the transaction as a whole.
If I buy a new home before I have sold my old one, do I have to pay Stamp Duty Land tax?
As long as you lived in your old home for 3 years leading up to the purchase of the new home, then although you will be liable to pay the higher rate SDLT, assuming that you sell that first home within 3 years of your purchase of the new one, you may be able to claim back some or all of the additional SDLT that was paid.
You cannot get a refund if:
- you or your spouse still own any part of your previous home.
- the higher rates still apply to you for another reason.
Find out more on how to claim.
Stamp Duty Land Tax (SDLT) on divorce
In general, there is no exemption for SDLT on the transfer of properties between spouses or civil partners living together. The only relief is that the transfers are charged at the standard residential rates and the 3% higher surcharge will not apply to these transfers.
The transfer of properties will be exempt from SDLT if they are in connection with the divorce, dissolving a civil partnership, or legally separating or annul their marriage. The exemption will only apply if the transfer is made under a court order, judicial separation or in connection with the pursuance of dissolution or annulment of the marriage.
Further, the transaction between the couples will normally be exempt and any transfers involving a third party will still be subject to SDLT.
What are the Stamp Duty rates for non-UK residents?
From 1st April 2021, a 2% stamp duty surcharge was introduced for overseas buyers on the purchase of residential property in England and Northern Ireland.
The surcharge applies to non-resident buyers regardless of the type of buyer (e.g. company or individual) subject to very few exceptions for collective investment vehicles such as REITs.
The surcharge is in addition to the existing 3% stamp duty surcharge on purchases of “additional” dwellings such as buy-to-lets and second homes.
When do I need to pay Stamp Duty?
Once your property purchase is complete, the stamp duty payable needs to be paid within 14 days. If the purchase price was over £40,000, an SDLT Return must be submitted to HMRC, even if no Stamp Duty is payable within 14 days of completion. Your solicitor will usually complete the SDLT Return for you and arrange the payment.
Stamp Duty penalties, appeals and interest
If HMRC receive your SDLT return late or you do not pay the SDLT that you owe on time, you will be liable to a penalty from HMRC
Penalties for late submission of an SDLT return
If HMRC does not receive the land transaction return within 14 days of the effective date, you’ll automatically be charged a £100 penalty. If your return is more than 3 months late you’ll be charged a penalty of £200. If you pay the tax late, you’ll also be charged interest.
If your land transaction return is more than a year late, you may be liable to a tax¬-based penalty, which can be up to the amount of SDLT due on the land transaction return.
If you are charged a penalty, you will receive a penalty notice from HMRC informing you of the penalty. The penalty should be paid within 30 days of the notice.
If you disagree with a penalty notice, you can write to HMRC and appeal it within 30 days of the date of the formal penalty notice. You need to explain why you disagree with the penalty and send supporting documentation.
Late payment of SDLT
You must pay any SDLT due within 14 days after the effective date of the transaction. If you pay the tax late, youll pay interest from the day after you should have paid it until the day you pay it.
If you do not pay, HMRC will write to both you and your accountant to tell you how much tax you’ve underpaid and how much interest we’ve charged you so far. You should pay the tax and the interest as soon as possible.
You cannot appeal against a late payment interest charge. Interest charged on tax is not a penalty so you cannot appeal against it. It’s a charge to compensate HMRC for not having the money when we should have, so you must pay it.
When did the Stamp Duty rates change?
There was an SDLT cut announced by the Government on 23 September 2022 and this cut is due to remain in place until 31 March 2025 to support the housing market.
This measure temporarily increases the amount that a purchaser can pay for residential property before they become liable to Stamp Duty Land Tax (SDLT) while maintaining the higher rate of 3% on additional dwellings. It increases the residential nil-rate tax threshold from £125,000 to £250,000.
The nil-rate threshold for First Time Buyers’ Relief is also temporarily increased from £300,000 to £425,000 and the maximum property value that is eligible for First Time Buyers’ Relief is increased to £625,000.
The measure means that all purchasers of residential property bought between 23 September 2022 and 31 March 2025 will pay less or no SDLT.
Rates for non-residential and mixed land and property
You pay Stamp Duty Land Tax (SDLT) 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.
Are any properties exempt from Stamp Duty?
There may be circumstances where Stamp Duty may not be payable. Some examples might include:
- Transfer of property in pursuance of a court order during separation, divorce or dissolution are generally exempt. If a couple agrees to separate permanently without getting a court order, they will be treated for SDLT purposes as an unmarried couple.
- Property left under the terms of a Will (inherited property) may not be subject to SDLT provided no other consideration is given. There is usually no requirement to inform HRMC in this case.
- If you gift your home to someone else, they won’t have to pay SDLT on the market value of the property provided there is no outstanding mortgage on the property. If you take over some or all of an existing mortgage, SDLT may be payable on the value of the mortgage over the relevant SDLT threshold.
Seek advice from a professional tax advisor.
Navigating the complexities of property taxes can be daunting, especially when it comes to understanding the rules, reliefs and exemptions of Stamp Duty Land Tax (SDLT) in the UK. This is where dns accountants can help. For more advice on Stamp Duty and other property taxes call our team on 03300 886 686, or email on email@example.com.
Any questions? Schedule a call with one of our experts.
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