What Exactly is Stamp Duty?
Buying a house can be exciting and complex. And frightening. And invigorating. And stressful. And life-changing. And…
The list goes on.
The process might be very costly in the short term but prove to have been a hugely profitable move in the long term. Buying a house can also involve pleasant and unpleasant surprises. If you’d prefer to avoid the latter, you’ll need to understand Stamp Duty Land Tax (or SDLT, commonly referred to as ‘stamp duty’).
In short, you must pay SDLT if you buy a residential property costing over £125,000 in England, Wales or Northern Ireland. (The current SDLT threshold for non-residential land and properties is £150,000 but in this blog post we will focus on residential properties.)
SDLT potentially applies when you are buying a freehold property; buying a new or existing leasehold; buying a property through a shared ownership scheme (run by an approved public body such as a local housing authority); or being transferred land or property in exchange for payment (for example, if you take on a mortgage or buy a share in a house). The phrase “potentially applies” reflects the fact there are exemptions to SDLT, including when you buy a freehold property for less than £40,000. You must, however, still send an SDLT return to HM Revenue & Customs (HMRC) for non-exempt transactions under £125,000. (First-time buyers might need to know ‘freehold’ basically means permanent and absolute ownership of a property or land whereas ‘leasehold’ effectively means a fixed term of ownership of a property.)
Our readers in Scotland should note SDLT does not apply to properties bought there but a similar Land and Buildings Transaction Tax does exist, with different rates from SDLT.
Let’s take a more detailed look at how much SDLT you pay when buying residential property. The total value on which you pay (called the ‘consideration’) is usually the price you pay for the property and you pay at different rates on different portions of the property price. Therefore:
On property costing up to £125,000, no SDLT needs to be paid;
The next £125,000 (being the portion from £125,001 to £250,000) carries an SDLT rate of 2%;
The next £675,000 (being the portion from £250,001 to £925,000) carries an SDLT rate of 5%;
The next £575,000 (being the portion from £925,001 to £1.5m) carries an SDLT rate of 10%, and;
Any remaining amount (being the portion above £1.5m) carries an SDLT rate of 12%.
If, for example, you are buying a house for £275,000, SDLT is paid at 0% on the first £125,000, at 2% on the next £125,000 (being £2,500) and at 5% on the remaining £25,000 (being £1,250). The total SDLT owed is therefore £3,750.
To avoid penalties and interest, you must file your return and make your SDLT payment within 30 days of completion (which is the final stage in the sale of a property, at which point the property legally changes ownership). If you have engaged a solicitor, agent or conveyancer to help you buy your property, that person will ordinarily file your return and pay the tax on your behalf on the day of completion, adding the amount to their fees.
Buying a home without help from an experienced and skilled conveyancing solicitor is extremely risky. SDLT is a good case in point. There are many complexities, reliefs and exemptions surrounding SDLT that cannot possibly be covered in this blog post. Engaging a solicitor is the best way to ensure you handle the specifics of your situation correctly.
Are you having trouble getting the keys to your dream home? Our residential conveyancing services based in Surrey are ideal for those buying and selling their homes. Get in touch with a team member for more details.