Guide to Stamp Duty Land Tax

guide to stamp duty land tax- Butt Miller Chartered Accountants
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    Disclaimer: This article is based on legislation which was correct at time of publishing on June 17, 2022
    This page was last updated on March 18, 2024

    At Butt Miller Chartered Accountants, we have created this guide to help you understand how Stamp Duty Land Tax works and how it may affect you. Read on to find out more, or contact us today for help.

    What is Stamp Duty Land Tax (SDLT)?

    Stamp Duty Land Tax is a one-off tax that you have to pay when you purchase a property in the UK. The amount of Stamp Duty Land Tax you have to pay varies depending on the purchase price of your property – the more expensive your property, the higher the SDLT will be.

    Property buyers should be aware of Stamp Duty Land Tax and factor it in when budgeting for a new house.

    What is a land transaction?

    A transaction will trigger liability if it involves the acquisition of an interest in land. This will include a simple conveyance of land, such as buying a house, creating a lease or assigning a lease.

    Who pays the Stamp Duty?

    Stamp Duty Land Tax (SDLT) is payable by the purchaser in a land transaction in England and Northern Ireland. For land transactions occurring in Scotland, Land and Buildings Transaction Tax (LBTT) applies, and in Wales, land transactions are chargeable to Land Transaction Tax (LTT).

    Who is exempt from paying Stamp Duty?

    You might be eligible for Stamp Duty Land Tax relief in some instances to reduce the amount of tax paid. This can include first-time buyers relief, multiple dwellings relief and various other forms of tax relief for companies, employers and charities.

    If you are eligible for Stamp Duty relief, you will need to file a Stamp Duty return, even if there is no tax to pay. HMRC has a complete, in-depth guide for SDLT relief.

    When is the tax payable?

    The tax has to be paid when a contract has been substantially performed. In cases where the purchaser takes possession of the property on completion, that will be the date. However, if the purchaser effectively takes possession before completion – known as ‘resting on contract’ – that will be regarded as triggering the tax.

    How much Stamp Duty is payable on residential property?

    The amount of Stamp Duty you’ll be required to pay on residential property will vary depending on the price of the property and whether you are eligible for any tax reliefs.

    It is important to note that you only need to pay Stamp Duty Land Tax on the portion of the property value which falls within each band.

    Current SDLT rates

    From 23 September 2022, the current Stamp Duty Land Tax rates are:

    Residential Property Purchase PriceBand % Rates
    £0- £250,0000%
    £250,001- £925,0005%
    £925,001- £1.5 million10%
    Over £1.5 million12%

    First-time buyer relief

    From 23 September 2022, first-time buyers pay 0% Stamp Duty Land Tax on residential properties on consideration up to and including £425,000.

    The excess beyond this and up to £625,000 will be charged at 5%, with normal Stamp Duty rates applying beyond £625,000.

    Each SDLT rate is payable on the portion of the property value which falls within each band.

    The rates and thresholds are:

    Property ValueBand % Rates
    £0- £425,0000%
    £425,001- £625,0005%
    Over £625,000Normal rates apply

    First-time buyers’ relief for qualifying shared ownership

    First-time buyer relief applies to purchasers of qualifying shared ownership properties who do not elect to pay SDLT on the market value of the whole property when they purchase their first share. Relief will be applied to the first share purchased, where the market value of the shared ownership property is £625,000 or less.

    Additional residential properties

    From 23 September 2022, higher Stamp Duty Land Tax rates are charged on purchases of additional residential properties (above £40,000).

    The main target of the higher rates is purchases of buy-to-let properties or second homes. However, some purchasers will have to pay the additional charge even though the property purchased will not be a buy-to-let or a second home.

    The 36-month rule set out below helps to remove some transactions from the additional rates (or allow a refund). Care is needed if an individual already owns or partly owns a property and transacts to purchase another property without having disposed of the first property.

    The higher rates are three percentage points above the SDLT rates shown in the table above. The higher rates potentially apply if, at the end of the day of the purchase transaction, the individual owns two or more residential properties.

    Some further details:

    • Purchasers will have 36 months to claim a refund of the higher rates if they buy a new main residence before disposing of their previous main residence.
    • Purchasers will also have 36 months between selling a main residence and replacing it with another one without paying the higher rates.
    • A small share in a property inherited within the 36 months prior to a transaction will not be considered an additional property when applying the higher rates.
    • There will be no exemption from the higher rates for significant investors.

    What about non-residential and mixed property?

    The rates for non-residential and mixed properties are set out in the table below.

    The SDLT rates are payable on the portion of the property value which falls within each band:

    Non-residential and MixedBand % Rates
    £0- £150,0000%
    £150,001- £250,0002%
    Over £250,0005%

    Broadly speaking, ‘residential property’ is a building that is suitable for use as a dwelling. Obviously, it includes ordinary houses. Buildings such as hotels are not residential.

    What if I have more than one dwelling?

    There is a relief available for purchasers of residential property who acquire interests in more than one dwelling at the same time.

    Where the relief is claimed, the Stamp Duty Land Tax rate is determined not by the aggregate consideration but by the mean consideration (i.e. the aggregate consideration divided by the number of dwellings) subject to a minimum rate of 1%.

    This relief is removed by the Spring 2024 Budget, effective from 1 June 2024.

    SDLT surcharge on non-UK residents

    A 2% surcharge on non-UK residents purchasing residential property in England and Northern Ireland is in effect from 1 April 2021. Transitional rules may apply where contracts were exchanged before 11 March 2020 but completed or were substantially performed after 1 April 2021.

    What exemptions are there?

    There are several situations where land transfer will not be caught for SDLT.

    These include:

    • a licence to occupy
    • a gift of land
    • transfers of land in a divorce
    • transfer of land to a charity
    • transfers of land within a group of companies.

    What is the tax charged on?

    Tax is chargeable on the consideration. This will usually be the actual cash that passes on the sale. However, the definition is extensive and is intended to catch all sorts of situations where value might be given other than in cash, for example, if the purchaser agrees to do certain work on the property.

    How does the tax work on leases?

    If an existing lease is purchased, SDLT is calculated similarly to the purchase of a freehold property. Suppose a lease is created to pay a premium, i.e. a lump sum in addition to any rent. In that case, the premium amount is the consideration subject to Stamp Duty Land Tax and is also calculated in the same way as the purchase of a freehold property.

    However, there is also a potential charge to SDLT on the rental element. The calculation takes account of various factors, including the rent that will be paid under the lease. If the calculated value exceeds £125,000 for residential property and £150,000 for non-residential, the excess is charged at 1%.

    A 2% rate applies to rent paid under a non-residential lease where the NPV of the rent is above £5 million.

    The government has SDLT calculators which work out the amount of SDLT payable. The Stamp Duty Land Tax Calculators can be found on the Gov website.

    How do I tell HMRC about a liability?

    The purchaser must complete an SDLT1 return, which must be submitted to a special HMRC office within 30 days of the transaction. The purchaser must also send a cheque for the tax at the same time, so this means that they have to calculate the tax due.

    A late return triggers an automatic penalty of up to £200, and late payment of the tax will mean an interest charge.

    What will HMRC do then?

    A certificate will be sent to the purchaser to show they have paid the tax. This certificate is required to change the property ownership details at the Land Registry. The fact that HMRC has given the purchaser a certificate does not mean the SDLT calculations are agreed upon.

    HMRC has nine months to decide whether to enquire into the return and challenge the figures.

    Contact Butt Miller for proactive tax advice

    Are you looking to purchase land and want to understand your financial position first? At Butt Miller, we can advise you of the precise impact of Stamp Duty Land Tax (SDLT) on the transaction. We can also help you complete the SDLT1 return and submit it to HMRC. Contact us today – we’re here to help.

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