Have you factored in Stamp Duty in your next property purchase?

SDLT - Flats
Have you considered SDLT on your next property purchase. How much you need to pay and when you’ll need to pay it.

There are a few other expenses you may have to consider when buying a property. These may include legal costs and agent fees, among others. You may also have to pay stamp duty when buying your next home. So what exactly is the stamp duty and how much is this likely to cost you?

This guide has been compiled to help you get a better understanding so that this won’t come across to you as a frustrating or unexpected surprise.

What is Stamp Duty?

Stamp Duty Land Tax (SDLT) is defined simply as a tax that is levied on property in the UK.

This payment is needed to help you obtain a Certificate of Land Ownership from the HM Revenue & Customs, indicating that you own the land on which the property sits.

The buyer is always responsible for the stamp duty payment. However, not every property and not every buyer is liable for this. You’ll have to discuss with your solicitor to know if this will apply to your purchase. 

Who Pays SDLT?

Stamp duty in the United Kingdom is paid by everyone purchasing a residential or non-residential property including overseas buyers, corporate bodies and non-natural persons. Stamp duty is only payable on land purchase. The date of completion is the day the purchase is finalized.

You pay the tax when you:

  • buy a freehold property
  • buy a new or existing leasehold
  • buy a property through a shared ownership scheme
  • transfer land or property in exchange for payment, for example, you take on a mortgage or buy a share in a house

How Much Would You Pay When Buying Your Next Home?

All property purchases above £125,000 are liable to stamp duty land tax. However, the announcement of the 2017 Autumn Budget brought on specific changes for first-time buyers. 

There are also rules for people buying additional properties.

From March 2017 anyone buying another property in addition to their current one is required to pay a higher rate of SDLT if the property or part of the property is bought for £40,000 or more.

Here is a breakdown of how much you’ll have to pay for stamp duty;

(Main Residence)
(Additional Properties)
£0 – £125,000 0% 3%
£125,001 – £250,000 2% 5%
£250,001 – £925,000 5% 8%
£925,001 – £1.5m 10% 13%
£1.5m + 12% 15%

So, what does this mean?

Let’s assume you’re moving home and planning to buy a property worth £400,000 as your main residence; the payable stamp duty will be calculated as;

  • 0% (£0) on the first £125,000 
  • 2% (£2,500) on the second £125,000, and
  • 5% (£7,500) on the remaining £150,000.

So, in all, you’ll be expected to pay £10,000 (£0 + £2,500 + £7,500).

First Time Buyers

First-time buyers are exempt from properties up to £300,000. A first-time buyer who has never owned a residential property does not have to pay stamp duty on the first £300,000 of the property of a home costing £500,000. 5% stamp duty must be paid on the portion between £300,001 and £500,000.

The 2017 changes were aimed at making homeownership more affordable for first-time buyers. This is also now applicable to first-time shared ownership purchases as well, as announced in the 2018 Autumn Budget.

This means the stamp duty threshold for first-time buyers is as follows:

Property value                                                                    Stamp Duty rate

Up to £300,000 (First Time Buyers)        Zero
Next is £200,000 (the portion from £300,001 to  £500,000)          5%

Here’s an example.

So, let’s assume you’re planning to buy your very first home for £550,000.

You’ll only have to pay £12,500 as stamp duty;

  • £0 (0%) on the first £300,000, and
  • £12,500 (5%) on the remaining £250,000

In joint applications, parties involved must be first-time buyers. If either has owned property or properties before, the standard stamp duty rates will apply accordingly.

Buying a Shared Ownership Home

When a property is bought through an approved shared ownership scheme, a stamp duty land tax (SDLT) needs to be paid. There are two major ways to pay stamp duty on newly built or lease property, the first one is a One-off payment based on the total market value of the property while the second one is Paying any SDLT due in stages. One-off payment upfront is known as Market Value Election and is paid only once. Paying through SDLT in stages means payment on the initial purchase amount which will not incur any other payments until 80% of the share has been bought.

Buying Through a Limited Company

Companies must pay the higher rates for any residential property they buy if:

  • the property is £40,000 or more
  • the interest they buy is not subject to a lease which has more than 21 years left.

Other Rules About Stamp Duty

Aside from the rates and details above, there are still a few other rules.

  • Gifted and inherited properties are exempted from stamp duty payment.
  • Owning a total of two or more homes after the current purchase may attract 3% extra surcharge on top of the normal stamp duty bill.
  • Properties registered to companies and worth over £500,000 will attract a stamp duty rate of 15%.
  • Charity organizations buying properties or land for charitable purposes are exempted from stamp duty payment.

All of the other reliefs and exemptions, along with other useful information can be found on the official HMRC website. You’ll be required to pay for stamp duty no later than 14 days after the purchase of the property in question (30 days for transactions that took place on or before 28 February 2019). While your solicitor or conveyancer would handle this on your behalf, failure to comply may attract penalties.   

When to pay

SDLT is usually paid within 14 days once the property has been completed. If you have a solicitor, agent or conveyancer, they’ll usually file your return and pay the tax on your behalf on the day of completion and add the amount to their fees. 

So don’t get caught when buying your next property. Consider how SDLT can impact your next property purchase.

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