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Stamp Duty Explained

Posted on 02 January 2018
Stamp Duty Explained

A guide to Stamp Duty

What is Stamp Duty Land Tax?

Stamp Duty Land Tax (SDLT) is a tax that is charged on land transactions involved in the buying of a residential property. SDLT is a form of self-assessed transfer tax that was introduced by the Finance Act 2003 with effect from 1 December 2003. Although this replaced the previous Stamp Duty regulations, the alterations to Stamp Duty were minimal. Changes do, however, include that a tax return is made out to the HM Revenue & Customs (previously Inland Revenue). Reforms were introduced in December 2014, when the
boundaries for Stamp Duty rates were changed, and particularly affect property purchases over £925,000.

From 1st April 2016, anyone buying an additional residential property, such as a second home or buy-to-let, must pay an extra 3% on top of existing SDLT. This announcement was made in Chancellor George Osborne’s 2015 Autumn Statement.

As of 22nd November 2017, First Time Buyers are exempt from paying Stamp Duty up to £300,000. There is further information being eligible for this exemption below.
How much Stamp Duty do you pay? The rate of stamp duty you pay depends on the type of property, and whether it is residential or non-residential /mixed-use.

There are several rate bands for stamp duty and the tax is calculated on the part of your property that fall within each band. Residential property stamp duty rates Stamp duty is payable on the rate of tax on the part of the property price within each tax band.

The stamp duty rates for freehold sales and transfers, and most leasehold properties, are currently:

0% on the first £125,000 paid (this includes shared ownership properties if the share is under £125,000)
2% on the property price between £125,001 and £250,000
5% on the property price between £250,001 and £925,000
10% on the property price between £925,001 and £1,500,000
12% on the property price of £1,500,001 and over

For example, a house priced at £260,000 would attract an SDLT of £3,000, whereby 2% will be paid on £125,000 to £250,000 of the purchase price, and 5% stamp duty will be paid on the remaining £250,001 to £260,000. A house valued at £940,000 will pay a total of £37,750 and will range across 3 stamp duty percentage rates:

Purchase price bands (£) 

Percentage rate (%)
Up to 125,000 0%
125,001 to 250,000 2%
250,001 to 925,000 5%
925,001 to 1,500,000 10%
Above 1,500,000 12%

Stamp Duty for First Time Buyers
As of 22nd November 2017, first time buyers are exempt from Stamp Duty on properties up to £300,000. If they buy a property up to £500,000 they will pay no Stamp Duty on the first £300,000 and only pay on the remaining amount. You will not need to do anything to qualify for this exemption – your conveyancing solicitor will ensure you meet the appropriate criteria.

You qualify for the Stamp Duty exemption if:
You are a first time buyer
You are buying a home that you will live in
Your property is below £300,000 (for no stamp duty at all)
Your property is under £500,000 (you will only pay stamp duty on the amount over £300,000)
Your property is not in Scotland (Wales will stop being part of the scheme in March 2018)

Make sure you know the definition of a first time buyer in this case:
You cannot have ever owned a property, even if you have now sold it (this includes inheritance)
You cannot have owned property abroad
If it is a joint purchase, both partners be first time buyers
You can own commercial property

Mixed-use property stamp duty rates
Properties accepted as being mixed-use qualify for a lower stamp duty rate than residential properties.

For a mixed-use property you pay:
1% on properties from £150,000 to £250,000
3% on £250,000 to £500,000
4% on properties worth over £500,000

According to the HMRC, a mixed-use property is one that shares both elements of a residential and non-residential property. For example a flat that is connected to a shop.

Non-residential property includes:
Agricultural land
Commercial property – e.g. a shop
Land or property that is not used as a residence
More than 6 residential properties bought in a single transaction

How do you pay stamp duty?
In practical terms, your solicitor or conveyancer will generally deal with Stamp Duty on your behalf. As a rule of thumb, they tend to submit your return and pay the amount due on the date of completion, and either add the amount to their fees or (more commonly) collect the amount from you in advance. Stamp Duty must be paid within 30 days of the 'effective date' of completion.

Regardless of whether tax is payable on a property, you are obliged to provide a return to HM Revenue & Customs. If the return is not received within 30 days of the completion of the transaction, you could be issued with a fine.

It is impossible to register a change in the ownership of land without the Certificate that is provided by HM Revenue & Customs following the acceptance of a return. Exemptions
There are certain situations in which you may be eligible for SDLT reliefs and exemptions. Stamp Duty reliefs can reduce the amount of tax you pay, however you must complete an SDLT return in order to claim, even if no tax is payable.

You don’t have to pay SDLT or file a return if:
Property is left to you in a will
Property is transferred because of divorce or separation
Property is purchased over the £125,000 price band and the seller agrees to accept a lower offer
Property is given as a gift or transferred with no money or other payment exchanging hands
Property is a holiday lodge - any property that is movable is exempt
Property is a houseboat - only purchases that use land space are taxable - unless your houseboat comes with a large garden, then you may still be charged Stamp Duty for Buy-to-Let

In April 2016, the details of Stamp Duty for Buy-to-Let property changed. Now, the new Buy-to-Let Stamp Duty rules mean that if you are buying an additional property, you will have to pay an extra 3% in Stamp Duty. This includes Buy-to-Let landlords and those buying second homes and holiday homes.

You will not need to pay the higher rates if you are purchasing a caravan, mobile home or houseboat, and if the total property value is under £40,000, you will not be required to pay any SDLT.

It is important to note that if you purchase a new home before you have sold your first property you will also have to pay the additional 3% SDLT. If you are unable to sell your first home within 18 months of buying your new property, then you will not be entitled to reclaim the 3% SDLT surcharge.

Buy-to-Let stamp duty rates:

Purchase price bands (£)      Old percentage rate (%)   New percentage rate (%)
Up to £125,000                    0%                                 3%

£125,001 to £250,000          2%                                 5%

£250,001 to £925,000          5%                                 8%

£925,001 to £1,500,000      10%                                13%

Above £1,500,000               12%                                15%

Scotland Land and Buildings Transaction Tax
Changes to stamp duty in Scotland were announced in Scotland’s 2015 budget proposal.

Stamp duty in Scotland is now referred to as ‘Land and Buildings Transaction Tax’ and includes residential and commercial land and buildings transactions.

Properties costing less than £145,000 will no longer be payable, in an aim to help first time buyers.

Land and Buildings Transaction Tax bands:

Purchase price bands (£)
LBTT percentage rate (%)

Up to £145,000 0%
Above £145,001 to £250,000 2%
Above £250,001 to £325,000 5%
Above £325,001 to £750,000 10%
Over £750,000 12%

As of 1st April 2016, property buyers in Scotland must pay an extra 3% surcharge for additional properties, such as second homes and Buy-to-Let. Any property under the total value of £40,000 will not have to pay the extra LBTT.

Purchase price bands (£)   Old LBTT percentage rate (%)   New LBTT percentage rate (%)

Up to £145,000                  0%                                          3%
£145,001 to £250,000        2%                                          5%
£250,001 to £325,000        5%                                          8%
£325,001 to £750,000       10%                                         13%
Above £750,000                12%                                         15%

Land Transaction Tax in Wales
From April 1st 2018, Land Transaction Tax will replace the UK Stamp Duty Land Tax in Wales.

The change in taxation means that there is nothing to pay on properties worth up to £180,000. As the average cost of a property in Wales is £150,000 (2017) there are many who will benefit from the changes, but as the thresholds on more expensive properties have been lowered, those with properties of a higher value will be paying significantly more.

The new Welsh rates are:
Up to £180,000 - nothing to pay
£180,001 - £250,000 - 3.5%
£250,001-£400,000 - 5%
£400,001-£750,000 - 7.5%
£750,001 - £1.5 million - 10%
Over £1.5 million - 12%

Source: November 2017
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