Whenever you are purchasing a property, one of the key considerations for the transaction is cost. On top of the purchase price of the property, these costs will typically involve solicitors’ fees, search fees, land registry fees, notice fees (if the property is leasehold), and for some transactions, Stamp Duty Land Tax. 

This article will provide a basic overview of Stamp Duty Land Tax and the importance of budgeting for it when you are buying your new home, or even a second property. 

What is Stamp Duty Land Tax?  

Stamp Duty Land Tax (commonly referred to as ‘SDLT’) is a tax that is payable when you purchase a property or land located in England and Northern Ireland that is over a certain price range. 

This includes buying a freehold property; a leasehold property with a new or existing lease; a property owned via a shared ownership scheme; and land or property which is transferred in exchange for consideration (payment), for example taking on a mortgage or purchasing a share in a property.   

Wales and Scotland have their own forms of SDLT. For Wales, this is Land Transaction Tax (LTT) and for Scotland this is Land and Buildings Transaction Tax: 

https://gov.wales/land-transaction-tax-guide  

https://www.gov.scot/policies/taxes/land-and-buildings-transaction-tax/  

How much SDLT will I need to pay? 

That depends entirely on the value of the property. Before determining how much SDLT you need to pay, you first need to consider whether the property’s value exceeds the current SDLT threshold. 

The current SDLT threshold for residential properties is £125,000. This means that if you are purchasing a property for less than this threshold, you will pay no SDLT. The current threshold for non-residential land and properties is £150,000. 

If the value of the property exceeds this threshold, then the amount of tax you pay will be determined using a number of ‘SDLT Bands’. This article will not go into any detail in respect of these bands. For a quick and simple SDLT calculation, we would recommend using the following link: 

https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro  

For more complex transactions, we recommend that you consult a tax adviser to confirm the amount payable. 

There is, however, an exception to the SDLT threshold. This applies when you already own a property and are purchasing a second property, which incurs a higher rate of SDLT. This higher rate is calculated as a 3% surcharge on any second property that is being purchased for £40,000 or more. 

It is important to note that this higher rate of SDLT only applies to residential properties, not to commercial properties or land, unless the land has a residential dwelling on it. A residential dwelling includes holiday homes, such as cottages or flats, but not caravans, houseboats and other similar items.  

Moreover, the criteria for owning a property already is rather broad, extending to ‘anywhere in the world’. This means that if you own a property overseas, and then purchase a property in England or Northern Ireland, you will still be liable to pay the higher rate of SDLT. 

The one exemption to paying the higher rate of SDLT is if you are replacing your main residence. For example, if you sell your current main residence and purchase another property that will act as your new main residence, you will then pay the standard rates of SDLT, regardless of whether you own any other properties.  

Are there any forms of tax relief available? 

Yes – quite a few in fact!  

This article will focus on the most common type of relief, First Time Buyers’ Relief. This relief applies if you, and anyone else you are buying with, are buying their first residential property for no more than £500,000. 

Using this relief, you will pay no tax on the first £300,000 of the property price and then 5% on the remainder of the purchase price, up to £500,000. This typically results in a tax saving of £5,000. Please note, that if the purchase price exceeds £500,000 you will then pay the standard rates of SDLT. 

Conclusion 

In conclusion, it is always important to consider how much SDLT you will be likely to pay when budgeting for your prospective property purchase. We hope that this article has provided some clarity in that respect.  

Please do contact us if you would like further information on this topic area.