Note: This article is for general information only. It is not meant as financial advice, for which you need to consult a regulated specialist. Information is correct as at 11 February 2021.
The Stamp Duty holiday announced by the Chancellor last summer led to a surge in property transactions as buyers rushed to get in before the 31 March 2021 deadline and save themselves thousands of pounds on a much unloved tax (aren’t they all?).
It’s unclear as to whether the holiday will be extended by Rishi Sunak. We may find out in his Budget on March 3. Regardless, we thought it might be a useful time to recap on exactly what Stamp Duty is and how it works.
Stamp Duty: The basics
Stamp Duty is a UK property tax you pay when you purchase a property or a piece of land. Otherwise known as Stamp Duty Land Tax or SDLT, it applies to people buying properties over a certain price in England and Northern Ireland (Scotland and Wales have slightly different schemes but the principles remain the same). The amount you pay depends on the purpose and value of the property you want to purchase, as well as the type of buyer you are, for example first-time buyer, previous homeowner, landlord.
Let’s start with the basics and shoot down some of the myths along the way:
- The buyer of a property, not the seller, pays Stamp Duty. You never pay Stamp Duty when you sell. You may, however, have to pay Capital Gains Tax (CGT) when you sell a property that is not your main residence – that’s something you need to discuss with your financial adviser or accountant
- You can’t deduct Stamp Duty from Income Tax, even on buy-to-let properties. But you can deduct it from your taxable gains to reduce the CGT you pay when you sell a property. Another one for your accountant
- You do not pay VAT on Stamp Duty, which is a tax in itself. Also, you don’t pay VAT on the purchase of a property
- Stamp Duty exemption areas do not exist. Whether you qualify for an exemption depends on your situation and the value of your property.
When and how you pay
HMRC needs to receive payment of Stamp Duty within 14 days of completion. To pay, you simply fill out an SDLT return and send it to HMRC. Your solicitor normally handles this for you at the same time they manage the transaction and submits the money to HMRC after completion.
Why do you pay Stamp Duty?
The original reason for paying Stamp Duty was to cover the cost of the legal documents required when you purchase a property. The name comes from the physical stamp of approval the Government used to impress upon your paperwork. Most documents are digital now and don’t require an actual stamp but you still pay Stamp Duty, which is essentially a means of gathering revenue. An example of a document you need is a Certificate of Land Ownership, which officially transfers the ownership from the previous occupier to you.
As it stands, you pay Stamp Duty if:
- You purchase a residential property or piece of land worth more than £500,000. This was previously £125,000. The Chancellor may well review that threshhold, so look out for any changes
- You purchase a new main residence to replace your previous one. This doesn’t include remortgaging
- You previously owned a property but sold it and now rent or live with friends or family and are buying another property
- You marry and then buy a property with your partner – even if one of you is a first-time buyer
- You’re a first-time buyer and you purchase a property valued £500,000+
- You buy a shared ownership property
- You purchase a non-residential property valued £150,000+
- You buy mixed-use land or property valued £150,000+
- You are being added to a mortgage/title deeds – this is considered as ‘buying’ a share of property or land.
You pay a Stamp Duty surcharge, otherwise known as Additional Stamp Duty, if:
- You purchase a second residence
- You’re a private landlord and you purchase a buy-to-let
- You purchase a buy-to-let through a limited company.
You won’t pay any Stamp Duty at all if you purchase a main residential property for up to £500,000. You won’t pay any Stamp Duty at the standard rates if you purchase a second residential property or buy-to-let for up to £500,000 but you will pay the Stamp Duty surcharge.
Exemptions and Relief
You’re exempt from Stamp Duty if:
- You receive land or property ownership in exchange for any payment or other consideration as stipulated by HMRC – for example through divorce
- A property is left to you in a Will. Instead of paying Stamp Duty on inherited property, you pay Inheritance Tax.
There are Stamp Duty relief options for:
- People purchasing multiple dwellings where a transaction, or several linked transactions, include freehold or leasehold interests in more than one dwelling
- Situations where a building company buys an individual’s home and the individual buys a home from the building company
- Employers that purchase an employee’s home because they’re moving with their work
- Compulsory purchases – for example, a council purchases a property to sell it on to a property developer
- Instances where a property developer is subject to planning obligations
- There is a transfer of property between companies
- Charities that purchase land and property for charitable purposes
- Right-to-buy properties where a residence is sold at a discount by a public-sector body or there’s a preserved right to buy. The Stamp Duty on Right-to-buy properties is worked out on the discounted price the buyer pays
- Certain situations in which registered social landlords buy land or property.
Stamp Duty rates
The amount of Stamp Duty you’ll pay depends on the value and purpose of the property you want to buy. If you’re buying a main residence and you’re either a first-time buyer or previous/current homeowner you’ll pay Stamp Duty at the standard rates. This includes people who have never owned a property, those who previously owned a main residence but don’t anymore, and people replacing their current residence with a new one.
|Property Value||SDLT Rate 08/07/2020 – 31/03/2021|
|Up to £500,000||0%|
|£500,001 – £925,000||5%|
|£925,001 – £1,500,000||10%|
You’re purchasing a new home for £700,000. The maximum rate of Stamp Duty you’ll pay is 5%, but you don’t pay 5% on the total value of £700,000. You pay different portions of the whole value at their corresponding rates: You’ll pay 0% on the first £500,000 of the £700,000 = £0; 5% on the final £200,000 of the £700,000 (the remaining portion from £500,001) = £10,000. Total SDLT = £10,000.
If you’re buying a second residence or a buy-to-let, you’ll pay a 3% Stamp Duty surcharge (Additional Stamp Duty) on top of the standard Stamp Duty rate.
If you’re a buying a non-residential property or mixed-use land, you pay Stamp Duty on any property above £150,000.
|Property Value||SDLT Rate for Non-Residential and Mixed-Use Land 08/07/2020 – 31/03/2021|
|Up to £150,000||0%|
|£150,001 – £250,000||2%|
Non-residential property includes: Commercial property (shops, offices etc); agricultural land; forests; any land or property that isn’t a residence; six or more residential properties bought as part of a single transaction. A mixed-use property is one with both residential and non-residential elements, like a flat above a shop.
You’re buying commercial property for £300,000. The maximum rate of Stamp Duty you will pay is 5% but this is only for the portion of your property value over £250,000 – i.e. £50,000. You pay some Stamp Duty at 2% and some at 5%. You’ll pay 0% on the first £150,000 of the £300,000 = £0; 2% on the next £100,000 of the £300,000 (the portion from £150,001 – £250,000) = £2,000; 5% on the final £50,000 of the £300,000 (the portion from £250,001) = £2,500. Total SDLT = £4,500.
Stamp Duty on shared ownership properties
You still pay Stamp Duty on shared ownership properties even though you only buy a portion. In fact, you pay Stamp Duty on the total value of the home, unless you’re a first-time buyer.
Reclaims of SDLT
You can reclaim Stamp Duty only if you’re eligible for a refund. You may be able to claim a Stamp Duty refund if you purchased a new main residence without selling your previous residence but then sold that previous residence within three years.
To claim back Stamp Duty, you need to complete an SDLT return and send it to HMRC either online or by post. You can hire a solicitor or legal conveyancer to carry out the return for you but it’s your responsibility to organise.