Buying a property is a huge decision – one that requires you to spend a lot of time, money, and resources.

Before you can make money out of the property, you’ll initially have to spend a considerable amount. You’ll incur the agent/legal fees and have to pay mandatory taxes such as land tax or stamp duty on purchases of the property.

No matter if you are a first-time buyer or are adding another house to your property portfolio, you’ll have a legal obligation to pay the stamp duty. Here is everything you need to know about Stamp Duty Land Tax.

Read more about Residential SDLT, Investor SDLT & Property Developer SDLT

The Stamp Duty Land Tax, or SDLT, is a tax that is charged on buyers purchasing a piece of land or a residential property costing more than £500,000 in England and Northern Ireland.

What Land Transaction does It Involve?

This tax is applicable on properties bought outright or with a mortgage – both freehold and leasehold properties. When you acquire an interest in land, the SDLT is triggered. This involves buying a house, assigning a lease or even buying a residential property or creating one.

When is the Tax Payable?

The tax is triggered when the contract on the land acquisition is significantly performed. It means the tax is triggered from the date the property possession is completed.

Similarly, the tax is triggered even if the purchaser takes control of the property before its completion.

What is the Tax Charged on?

SDLT is usually charged on the cash that is exchanged between the purchaser and the seller during the sale.

It encompasses all situations where value is transferred in forms other than cash too.

For instance mixed use property where, instead of giving money, if the purchaser accepts a certain price for work on the property, this tax is incurred.

How much is the Stamp Duty Land Tax?

Stamp Duty is calculated on the value of the house. The stamp duty tax changes according to the property price. These temporarily reduced existing stamp duty rates are applicable for properties bought between July 8th, 2020, and September 30th, 2021.

Purchase Price of the Residential Property	SDLT Band Rate
£0 – £500,00	0 %
£500,001 – 925,000	5 %
£925,001 – 1,500,000	10 %
£1,500,001 and above	12 %

 

Main Residence

Here is an example to help you understand the above table better. If you’ve purchased a property for £750,000, the Stamp Duty Land tax you’d have to pay would be:

• For the first £500,000, it would be 0%.

• 5% tax would be calculated on the remaining £250,000.

• So, the total SDLT tax you’ve got to pay will be £125,000.

Additional Properties – SDLT on Second home

Any property, which is not considered your main residence, is termed a ‘second home’. And if this new property is purchased at £40,000 or more, it attracts an additional 3% stamp duty surcharge (more than the SDLT rates shown in the above table).

Although remaining amount of the stamp duty is taxed on a tiered basis, the 3% surcharge is the higher rate calculated as a slab. That means the surcharge is calculated on the price of the entire place.

So taking forward the same example, if you buy a second residence at £750,000 in England or Northern Ireland, in addition to the stamp duty tax of £125,000, you’ll also have to pay a 3% surcharge. That means you’ll have to pay £22500 as stamp duty relief with the surcharge bringing the total payable amount to £147,500.

Some additional details:

• If the purchasers acquire a new residence before disposing of their current primary residence, they have 36 months for the higher rates refund.

• The purchasers do not have to pay higher tax rates if they can sell their main residence and replace it with another main residence within 36 months.

• Inheriting a small portion of a property will not be regarded as additional property if the inheritance happened 36 months before the transaction.

Joint Ownership

In case you purchase an additional property jointly with a partner or a friend before selling your previous main residence first, then you’ll still incur surcharge charges. This tax is charged regardless of whether the joint owner owns a house or not. You’ll still be able to make a refund claim if you meet the necessary criteria. Here is good read on Top Tax Saving Tips for Jointly Owned Properties

First-time Buyers

For residential property values of including and up to £300,000, first-time property buyers have to pay 0% SDLT. From £300,000 to £500,000, the tax will be calculated at 5%, and standard SDLT charges will apply for residential properties of beyond £500,000.

Surcharge on non-UK Residents

For non-UK residents buying a property in England and Northern Ireland, a 2% surcharge will be levied from April of buy to let 1st, 2021. Transactional rules might apply for non residential property, contracts initiated before March 11th, 2020, but completed or considerably performed by April 1st, 2021.

How is the Tax Calculated on Leases?

In case you buy an existing lease, then the SDLT is calculated similarly to the property purchase price of a freehold property. Suppose the lease is worked out for a premium amount in addition to rent. In that case, the premium amount is considered for SDLT calculation, and this is calculated as a freehold property. You can also make use of government-provided SDLT calculators to help work out your stamp duty tax easily.

Exemptions

There are a few exemptions where the land transfer will not be used for SDLT calculation. They include:

• A piece of land that is gifted (however, inheritance tax might still apply)

• Land transferred in case of divorce, separation, or the termination of civil partnership

• License to occupy land

• Land transferred within a group of companies

• Land transferred to a charity

How Do I Pay Stamp Duty Land Tax?

You’ll have to complete the SDLT return and submit the same to the HMRC office within 14 days of acquiring possession of your property or transaction. To file online, you will need a Government Gateway user ID and password. In case you need help with the filing, you can directly contact HMRC. A late tax return payment will trigger a penalty of £100, and interest will also be charged.

Once the HMRC accepts the tax return filed, they will send a certificate to acknowledge the tax paid. You’ll need this certificate to change the property ownership details at the Land Registry. A certificate from the HMRC doesn’t necessarily mean that the office has accepted the tax returns filed. The HMRC can decide to challenge the amount and enquire into the filing within the next 9 months.

When is SDLT not payable?

There may be circumstances where Stamp Duty may not be payable. Some examples might include:

In the context of separation, divorce, or dissolution, the transfer of property based on a court order is usually exempt from SDLT. However, if a couple separates without obtaining a court order, for SDLT purposes, they are treated as an unmarried couple.

Property left under the terms of a will may be exempt from Stamp Duty Land Tax (SDLT) if no other consideration is given. In such cases, there is generally no requirement to inform HM Revenue and Customs (HMRC).

If you transfer ownership of your home to another person as a gift, they may not be required to pay SDLT on the property’s market value, given that there is no outstanding mortgage. However, if they assume some or all of an existing mortgage, SDLT may apply to the amount exceeding the relevant threshold.

SDLT calculations might seem overwhelming at first. However, you can get help directly online service from the HMRC office or engage the services of established auditors or property accountants.

FAQs on Stamp Duty Land Tax (SDLT)

What is Stamp Duty Land Tax (SDLT)?

Stamp Duty Land Tax (SDLT) is a tax on property transactions in England and Northern Ireland. It is payable when you buy a property or land over a certain price.

Why do I have to pay Stamp Duty Land Tax?

SDLT is a mandatory tax imposed by the government on property purchases to help fund public services and infrastructure.

How is Stamp Duty Land Tax calculated?

SDLT is calculated based on the purchase price of the property or land. Different rates apply to different portions of the purchase price.

How do I pay Stamp Duty Land Tax?

SDLT is usually paid by your solicitor or conveyancer on your behalf. They will arrange for the payment and ensure that the tax return is filed with HM Revenue & Customs.

When do I need to pay Stamp Duty Land Tax?

SDLT is usually payable within 14 days of the completion of the property purchase.

What happens if I don’t pay Stamp Duty Land Tax on time?

Failure to pay SDLT on time can result in penalties and interest charges being imposed by HM Revenue & Customs.

Are there any exemptions or reliefs available for Stamp Duty Land Tax?

Yes, there are certain exemptions and reliefs available for specific circumstances, such as first-time buyers and certain property transactions.

Do I have to pay Stamp Duty Land Tax on all property purchases?

SDLT is generally payable on property purchases over a certain price threshold, but there are exceptions and different rules for specific types of transactions.

Can Stamp Duty Land Tax be included in the mortgage?

SDLT cannot usually be included in the mortgage. It needs to be paid separately at the time of the property purchase.

Are there any changes to Stamp Duty Land Tax rates or rules?

The government may make changes to SDLT rates and rules, so it’s important to stay updated with the latest regulations.

How is Stamp Duty Land Tax different from other property-related taxes?

SDLT is specific to property transactions in England and Northern Ireland, whereas other UK countries have their own property transaction taxes.

Can I claim a refund on Stamp Duty Land Tax?

In certain circumstances, such as if you sell your main residence within 3 years of buying a new one, you may be eligible for a stamp duty refund. For example, if you overpaid stamp duty or purchased a second home that you later sold, you can apply for a stamp duty refund claim. Additionally, properties that are uninhabitable or qualify for multiple dwellings relief may also be eligible for stamp duty refunds. The process involves submitting a refund claim to HMRC, detailing the reasons for entitlement and providing necessary documentation. It’s important to be aware of the timeframes for claiming a refund and to consider seeking expert advice to navigate the application process effectively.

Do I need to pay Stamp Duty Land Tax on a property gifted to me?

If you receive a property as a gift, you may still be liable to pay SDLT based on the property’s market value at the time of the transfer.

How can I find out how much Stamp Duty Land Tax I need to pay?

You can use HM Revenue & Customs’ SDLT calculator or seek advice from a professional to determine the amount of SDLT payable on your property purchase.

Where can I get more information about Stamp Duty Land Tax?

You can find detailed information about SDLT on the official HM Revenue & Customs website or consult a legal or tax professional for personalized advice.