What Is Stamp Duty And Who Pays It?

May 2019
What Is Stamp Duty And Who Pays It?

Stamp Duty Land Tax (SDLT) is a confusing subject, often overlooked by many first-time buyers.

 

The amount you end up paying varies by your situation, which makes it’s even more difficult to understand.

 

As a first time buyer, you might be able to claim relief and end up paying no SDLT.

 

You could be a second home, and have to pay more than if you were buying a new primary address.

 

If you’re confused, don’t worry. We’ll cover all of this and more, and answer all your stamp duty questions.

 

 

What is Stamp Duty?

If you buy a property in UK you have to pay a tax on the purchase. In England and Northern Ireland, this tax is called Stamp Duty Land Tax or SDLT for short.

 

The rules are slightly different if you’re buying in Wales or Scotland. In Wales, it’s known as Land Transaction Tax (LTT). Whereas in Scotland, buyer pay Land and Buildings Transaction Tax (LBTT).

 

Everyone pays this tax, whether they’re buying for cash or with a mortgage. There are, however, a few situations where you can legally pay less SDLT by claiming an exemption or relief.

 

It sounds fairly straightforward, so far.

 

The rules are different if you’re buying your first home, a second property or making an property investment.

 

 

How much Stamp Duty will I owe?

Like with other taxes, there are several rate bands for Stamp Duty. And so, the amount you’ll end paying is calculated on the part of the property purchase price falling within each band.

 

As they vary, let’s consider the different rates for England and Northern Ireland, Scotland and Wales.

 

 

 

 

England and Northern Ireland

Starting with Stamp Duty in England and Northern Ireland.

 

Buying a new main residence

There’s no tax on the first £125,000.

You’ll pay 2% between £125,001 – £250,000

Then 5% between £250,001 – £925,000

This rises to 10% between £925,001 – £1,500,000

And again to 12% on purchases over £1,500,001

 

Example

Let’s say we’re planning to buy a property for £500,000 as a main residence.

 

There’s no tax below £125,000, which is £0.

You’ll pay 2% on between £125,001 and £250,000, which is £2,500.

Then 5% on the value of the property between £250,001 and £500,000, which is £12,500.

 

So in total this means you’ll pay £15,000 (£0 + £2,500 + £12,500).

 

Buying a second home or investment property

There’s no tax on properties worth between £0 – £40,000

If the property is worth more than £40,000, You’ll pay 3% between £0 – £125,000

Then 5% between £125,001 – £250,000

8% between £250,000 – £925,000

This rises to 13% between £925,001 – £1,500,000

And again to 15% on purchases over £1,500,001

 

Example

Now let’s assume you’re buying the £500,000 property as a second home.

 

You’ll pay 3% between £0 – £125,000, which is £3,750.

Then 5% between £125,001 – £250,000, which is £6,250.

And 8% between £250,000 – £925,000, which is £20,000.

 

So in total this means you’ll pay £30,000 (£3,750 + £6,250 + £20,000).

 

 

If you’re stuck or want a quick way to calculate what SDLT is due, then use the HM Revenue and Customs’ Stamp Duty Land Tax calculator.

 

 

Scotland

Called Land and Buildings Transaction Tax in Scotland, it still works the same way. The major difference is the tax bands and rates.

 

Buying a new main residence

There’s no tax on the first £145,000.

You’ll pay 2% between £145,001 – £250,000

Then 5% between £250,001 – £325,000

This rises to 10% between £325,001 – £750,000

And 12% on purchases over £750,001

 

Buying a second home or investment property

You’ll pay 3% between £0 – £145,000

Then 5% between £145,001 – £250,000

8% between £250,000 – £325,000

This rises to 13% between £325,001 – £750,000

And again to 15% on purchases over £750,001

 

 

Wales

Called Land Transaction Tax in Wales. It is levied at slightly different rates to stamp duty and on different thresholds.

 

Buying a new main residence

There’s no tax on the first £180,000.

You’ll pay 3.5% between £180,001 – £250,000

Then 5% between £250,001 – £400,000

This rises to 7.5% between £400,001 – £750,000

Then 10% between £750,000 to £1.5m

And 12% on purchases over £1,500,001

 

Buying a second home or investment property

You’ll pay 3% between £0 – £180,000

Then 6.5% between £180,001 – £250,000

8% between £250,000 – £400,000

This rises to 10.5% between £400,001 – £750,000

Then 13% between £750,000 to £1.5m

And 15% on purchases over £1,500,001

 

 

 

 

First time buyers relief

If you haven’t owned a property before and are buying in England or Northern Ireland, there’s no Stamp Duty on properties worth up to £300,000.

 

In Scotland the amount is £175,000. Sadly, Wales doesn’t offer first-time buyers stamp duty relief.

 

This means as a first-time buyer in England and Northern Ireland, you can potentially save up to £5,000.

 

If you’re purchasing a property up to £500,000, then you’ll be liable for some SDLT. You still won’t pay a penny in tax on the first £300,000. But you will have to pay stamp duty on the remaining £200,000.

 

Over £500,000 and you do not qualify for any relief, and so will be charged for the full amount of SDLT.

 

The amount is different if you’re buying in a Shared Ownership scheme. As a first-time buyer, you can claim relief on homes worth up to £500,000.

 

If you’re married and jointly buying a property, then you both need to be eligible first-time buyers to claim the relief.

 

Unmarried people can still get a reduction in Stamp Duty if the only person named on the mortgage deed is a first-time buyer. However, this can get complex if you hope that the mortgage company will take both of your salaries into consideration or you break up.

 

 

Are leasehold property taxed differently?

Most leasehold properties incur stamp duty at the same rates of a freehold property.

 

However, if you’re buying a new build on a new lease, or an older property that has just been divided up and therefore new leases have been issued (known as ‘unassigned leases’), you may need to pay an additional stamp duty charge.

 

This additional charge is set a 1% and only applies if the total value of the rent you have to pay over the lifetime of the lease exceeds £125,000.

 

 

When do you have to pay Stamp Duty?

You now have 14 days (down from 30 days since 1 March 2019) to file a Stamp Duty Land Tax return and pay any SDLT due.

 

This period starts from the effective date of the transaction, which is usually the date you complete your purchase.

 

If you fail to submit a return and pay any tax due within 30 days, HMRC is likely to charge you a penalty and interest.

 

 

How to pay SDLT

Usually your solicitor, agent or conveyancer will fill the return and pay the fee on your behalf on the completion date. They will then invoice you for this amount and their fees.

 

They’ll also claim any relief you’re eligible for, such as if you’re a first-time buyer.

 

You can file and pay yourself if they don’t offer this as part of their service or you wish to do it yourself.

 

 

 

 

When don’t you have to pay?

While there aren’t many clever, legal ways to not pay SDLT, it doesn’t apply in a small number of situations.

 

If you’re divorcing or separating from your spouse or partner, there’s no Stamp Duty to pay if you transfer a proportion of your home’s value to them.

 

There’s no stamp duty if you transfer the deeds of your home to someone else, either as a gift or in your will.

 

Charities may be able to get relief from stamp duty when they buy land and property for charitable purposes.

 

Some Right-to-Buy transactions may qualify for stamp duty discounts.

 

Registered social landlords may be able to get relief if they are buying land or property.

 

Zero-carbon homes (including flats) under £500,000 are exempt from stamp duty. Ones worth over £500,000 have their stamp duty bill reduced by £15,000.

 

A full list of stamp duty exemptions and reliefs are listed on the HMRC website.  In all other situation, you will incur Stamp Duty on the property you receive based on its market value.

 

 

Can you lower your SDLT?

There are a few ways to legally lower your SDLT figure. However, it is a serious criminal offence to evade or to conspire to evade Stamp Duty.

 

Many accountants and lawyers sell “grey area schemes”, which promise to lower SDLT using a loop hole.  Most of these schemes are easily caught by HMRC and therefore it’s not even worth paying for any such advice. If and when you get caught by HMRC, you are likely to face fines and a demand for the full SDLT amount.

 

Instead, consider if you’re close to a rate band. If you are, can you offer or re-negotiate below this figure? You just might save thousands.

 

As you only pay stamp duty on the land purchase, removable fixtures and fittings are not subject to SDLT. For example, freestanding wardrobes, sofas, fridges, carpets and curtains.

 

If a seller is willing to leave certain items, you should agree to pay the seller a reasonable amount. You can then subtract it from the agreed purchase price, thus lowering the amount liable for SDLT.

 

HMRC has cracked down on this as many buyers where massively exaggerating. So if you do go down this route, make sure you can justify the value of the fixtures to the taxman.

 

You can always ask the vendor to spilt the SDLT with you. While they probably won’t, it doesn’t hurt to ask!

 

 

Conclusion

We all end up paying some amount of Stamp duty when buying a property. So make sure you include it in your budget before you go house hunting.

 

If you don’t, you may have to get a bigger mortgage, which could mean you end up with a higher interest rate. Be careful to budget and if you’re not good at maths, don’t worry. Use HMRC’s SDLT calculator instead of getting it wrong.

 

There are a few ways to lower your SDLT bill. However, HMRC will come after you if you try to evade it or try to lower it using a clever scheme.

 

Even if you have purchased a property before, it’s worth asking your solicitor if they handle the return and paying the tax as part of their service. If they don’t, and you’re unsure about the process, then consider finding a new solicitor.

 

Again it’s better to pay HMRC in full and promptly than have them chase you and charge you more.