What Is Stamp Duty Land Tax?
Stamp Duty Land Tax (SDLT) is a tax you have to pay when you purchase a property that costs over £125,000 in England and Northern Ireland. It was introduced to replace what was known as Stamp Duty in 2003. SDLT is not the same as stamp duty; it is a transfer tax charged on “land transactions”. The reason you pay SDLT is to cover the cost of the legal paperwork involved in transferring a property into your name. The main document involved is the ownership title of the property and a search to ensure you are buying the property from the right person.
In Scotland, a “Land and Buildings Transaction Tax” is paid.
In Wales, “Land Transaction Tax” is paid.
Who Pays And How Much?
The rate of SDLT you pay depends on what price threshold your property falls into and where in the UK you are. There are different rates in Scotland and Wales than England and Northern Ireland. It also depends on whether you qualify for stamp duty relief (outlined below) as a first-time buyer or whether you have to pay a higher amount as you are purchasing a buy-to-let or second home. Upon the purchase of a property, it is the buyer who pays the SDLT which is based on purchase price:
Property price £125,000 or less – no stamp duty
Property price £125,000.01 to £250,000 – 1% stamp duty
Property price £250,000.01 to £500,000 – 3% stamp duty
Property price £500,000.01 to £1,000,000 – 4% stamp duty
Property price £1,000,000.01 – £2,000,000 – 5% stamp duty
Property price £2,000,000.01+ – 7% stamp duty (15% if bought as a company)
As an example: a house priced at £260,000 would incur SDLT of £3,000, whereby 2% will be paid on £125,000 to £250,000 of the purchase price, and 5% stamp duty will be paid on the remaining £250,001 to £260,000.
A house valued at £940,000 will incur a total of £37,750 and will range across 3 stamp duty percentage rates
Instantly calculate Stamp Duty Land Tax (SDLT) with our UK Stamp Duty Calculator
If you are a first time buyer you may order to qualify for stamp duty relief under rules which came into effect in November 2017. To qualify the following conditions must be met:
- You, and anyone you happen to be co-purchasing with must never have had full or part ownership of a residential property, anywhere in the world, whether it was bought or inherited.
- The property you are buying must be in England or Northern Ireland.
- There is no first-time buyer relief in Wales. If you’re buying your first property in Scotland your zero-tax threshold will be raised from £145,000 to £175,000.
- The purchased property must be your main residence.
- The purchase price of the property must be less than £500,000.
Depending on the price of your property, you’ll either pay a reduced rate or no stamp duty at all:
- If the property costs less than £300,000, you’re exempt from stamp duty and won’t pay anything.
- If the property costs between £300,000 and £500,000, you’ll pay stamp duty at 5% of the amount over £300,000.
As of Autumn 2018 budget, Stamp Duty exemption for first time buyers will also apply to Shared Ownership properties up to the value of £500,000. This will include both those who elect to pay the whole tax upfront, as well as those who pay a portion and then pay again when they staircase upwards and buy more of the property.
Are There Any Other Exceptions?
There are several other stamp duty exceptions:
- Homes registered to companies rather than individuals that cost more than £500,000. These have a stamp duty rate of 15%.
- Charities are sometimes able to get relief from stamp duty when they buy land and property for charitable purposes.
- Right-to-Buy transactions can sometimes qualify for stamp duty discounts
- Registered social landlords may be able to get relief if buying land or property.
- Zero-carbon homes (including flats) under £500,000 are exempt from stamp duty. Those worth over £500,000 have their stamp duty bill reduced by £15,000.
- Property is left to you in a will
- Property is transferred because of divorce or separation. Property is gifted to you / transferred with no money or other payment exchanging hands
- Property is a holiday lodge / moveable
- Property is a houseboat – only purchases that use land space are taxable.
- A full list of stamp duty exemptions and reliefs are listed on the HMRC website.
Stamp Duty on Buy-to-Let Properties
The new Buy-to-Let Stamp Duty rules, which came in in 2016, mean that if you buy an additional property, you must pay an extra 3% in Stamp Duty. This includes Buy-to-Let landlords and people buying second homes / holiday homes.
(You don’t have to pay the higher rates if you are purchasing a caravan, mobile home or houseboat). If the total property value is under £40,000, you will not be required to pay any SDLT.
Important – If you purchase a new home before you have sold your first property you will also have to pay the additional 3% SDLT. If you do not sell your first home within 18 months of buying your new property, then you will not be entitled to reclaim the 3% SDLT surcharge.
Where Does My Money Go?
SDLT is paid to HM Customs and Revenue (in England and Wales) and so goes into the general funds of the UK National Government. It isn’t allocated to anything specific. It’s essentially divided up in exactly the same way that all other tax income is. You can find descriptions elsewhere of how the national government spends its money.
It works in pretty much the same way as your council tax which is spent by the local council, not the national government.
What Is The “Additional” Stamp Duty Rate?
If you buy an additional property worth £40,000 or more, then you must pay an extra 3% of the purchase price in stamp duty. This additional charge must be paid whether you purchase a second home to live in or a purchase a buy-to-let property. In effect, this works out as: 3% payable on the first £125,000; 5% on the next £125,000; 8% between £250,001 and £925,000, and so on…
The additional tax is not payable if your second home is a caravan, mobile home or houseboat.
You must also pay the additional charge if you buy your new residential property before you’ve sold the previous one since you will own two homes (in these circumstances, there may be ways of claiming the additional tax back via your self-assessment tax return).
The 3% surcharge applies to any of the following:
- Your main home is abroad and the second home you buy is in the UK
- The property is located in Scotland – the Scottish Government also adds 3% to its Land and Buildings Transaction Tax rates for second home purchases
- The second home is bought via a limited company.
What Are “Mixed-Use Property” Stamp Duty Rates?
Properties that qualify as being mixed-use qualify for a lower stamp duty rate than residential properties.
For a mixed-use property you pay:
- 1% on properties from £150,000 to £250,000
- 3% on £250,000 to £500,000
- 4% on properties worth over £500,000
A mixed-use property is one that shares both elements of a residential and non-residential property, for example a flat that is connected to a shop.
Non-residential property includes:
- Agricultural land
- Commercial property – e.g. a shop
- Land or property that is not used as a residence
- More than 6 residential properties bought in a single transaction
How Do I Pay Stamp Duty?
Your solicitor or conveyancer will usually deal with Stamp Duty on your behalf. In general they tend to submit your return and pay the amount due on the date of completion. They will either add the amount to their fees or, more commonly, collect the amount from you in advance. Stamp Duty must be paid within 30 days of completion.
Regardless of whether or not you have to pay SDLT, you MUST provide a return to HM Revenue & Customs. If the return is not received within 30 days of the completion of the transaction, you could be issued with a fine.
It is impossible to register a change in the ownership of land without the Certificate that is provided by HM Revenue & Customs following the acceptance of a return.
Stamp duty can be paid in the following ways:
- Online banking
- Telephone banking
- A cheque in the post