Everything About Stamp Duty
Everything About Stamp Duty
When purchasing a home or apartment, the buyer must pay Stamp Duty Land Tax (SDLT) on the rising value of the property.
The £250,000 threshold at which SDLT becomes applicable is relatively high.
The cost is determined by:
- In what year you purchased the home
- what you got it for
- regardless of whether or not you qualify for a waiver or exemption
How does stamp duty work?
In the United Kingdom, the purchase of real estate is subject to a tax known as Stamp Duty Land Tax (SDLT). The amount of SDLT due is scaled up or down based on the price at which the property is being purchased. Stamp duty tax rates increase as one moves from one tax bracket to the next.
In December of 2014, significant reforms to stamp duty were introduced. Previously, rates would increase at each SDLT threshold and be applied to the entire purchase price of the property, earning the old stamp duty system the nickname of a "slab tax."
Instead of being added to the ultimate purchase price of a property, stamp duty has been transformed into a progressive tax with rate rises between particular stamp duty thresholds since 2014. In November 2017, the government made additional adjustments to the new stamp duty system by introducing first-time buyer relief.
The 8th of July, 2020 marked the beginning of a stamp duty holiday that would last until the 30th of June, 2021. From July 1, 2021, through September 30, 2021, there was yet another transitional stamp duty vacation. The starting barrier for the 0% interest rate was established at £250,000 for the duration of the transition period.
On October 1, 2021, and lasting until September 23, 2022, stamp duty rates and thresholds went back to their pre-holiday levels. The threshold for paying no stamp duty at all was raised from £125,000 to £250,000 from September 23rd, 2022.
When does stamp duty need to be paid?
The new deadline for paying stamp duty on a home purchase is 14 days following the closing. Due dates for stamp duty returns are now only 14 days, down from 30 days as of March 2019.
As a matter of fact, people shouldn't noticeably be affected by the shorter time frame. This is because the vast majority of SDLT returns will be filed by a lawyer or conveyancer on their client's behalf.
Rates for a single property
If this is going to be your only home, and you buy it, then you will pay the lower rate of stamp duty. If you own additional single-family homes, you'll likely be subject to a 3% surcharge.
| Property, leasing premium, or transfer price | SDLT rate |
|---|---|
| Up to £250,000 | 0 |
| The remaining £675,000 (the balance between £250,001 and £925,000) | 5% |
| £575,000 more (from £925,001 up to £1.5 million) | 10% |
| The balance (over and above £1.5 million) | 12% |
Sales and Assignments of Existing Leases
The aforementioned SDLT rates apply to the 'lease premium' paid when purchasing a new residential leasehold property. If the 'net present value' of the rent paid throughout the term of the lease is greater than the SDLT threshold (currently £250,000), then the excess rent will be subject to SDLT at the rate of 1%.
Leases that have already been assigned are exempt.
SDLT for a home lease can be calculated using HMRC's:
- Stamp Duty Land Tax Calculator
- Help with buying a leasehold property
- Extra properties incur a premium
If the purchase of a new home would bring the buyer's total number of residences owned to more than one, an additional 3% will be added to the standard SDLT rate.
If the house you're purchasing is going to serve as your primary residence and your old one has already been sold, you won't have to pay the additional 3% SDLT. Your interest rate on the new home may be higher if you have not yet sold your primary dwelling on the day you close on the purchase. There's a reason for this: you have two houses.
Those who sell their prior primary residence within 36 months are eligible to receive a reimbursement. You may still be eligible for a refund of the additional 3% SDLT if all of the following apply, even if it takes you longer than 36 months to sell your prior primary residence:
Your prior home could not be sold due to extenuating circumstances, such as government restrictions due to coronavirus (COVID-19) or a public authority prohibiting the sale, and you bought your new home on or after January 1, 2017. You've finally managed to sell your previous residence.
If the sale took longer than 36 months, write to HMRC and provide an explanation for the delay.
Include:
- your information
- information about the primary purchaser, if different from yourself.
- Specifics of the unavoidable conditions that made it impossible to sell your home
- address, purchase date, and SDLT reference number of the property for which the higher rate of SDLT was paid
- Information on the prior primary residence, such as its location, the date of sale, and the SDLT unique transaction reference number.
- cost of SDLT at the higher rate.
- your bank account number and sort code, along with the tax refund amount you're requesting.
Non-UK resident rates
For SDLT reasons, you are considered "not a UK resident" if you have not been physically present in the UK for at least 183 days (6 months) in the 12 months prior to your purchase.
A 2% premium is added to the purchase price of a home in England or Northern Ireland.
The possibility exists that you won't be required to pay the surcharge at all if you are a qualified purchaser of a particular type of property or are involved in a specific sort of transaction. Be sure to read the fine print regarding who must pay the surcharge, when they do not apply, and if they are eligible for exemption.
As well as the extra, you'll have to cover any additional applicable SDLT costs, like:
- If you are adding to your current real estate portfolio and already own a home.
- The first-time buyer situation.
- You can figure out your tax liability using the SDLT calculator.
