The Ultimate Guide to Stamp Duty Land Tax (SDLT)

What is stamp duty land tax..?

Stamp Duty Land Tax (SDLT) must be paid if you buy property or land over £125,000 in England and Northern Ireland on first properties and over £40,000 on second properties. This applies to both freehold and leasehold properties – whether you need a mortgage or not. In Wales, you would be liable for Land Transaction tax and in Scotland Land and Buildings Transaction Tax – but they are essentially similar beasts. It is a good idea to research Wales and Scotland tax systems specifically if you are buying in these countries.

SDLT is a tax charged by the government and was originally designed to cover the cost of the legal documents needed to finalise the transaction. What documents? Well, it usually means the ownership title of the property. However, the tax also covers the search needed to ensure you are buying from the correct person. Now its a charge on the land transaction.

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A simple-ish guide to stamp duty land tax rates

There are a lot of stamp duty calculators available online which are well worth using – and this can sidestep some of the complexities and formulae for working out how much you pay. Adding to the complexities are several band rates for Stamp Duty depending on the price of the property or land. There are also different prices for first and second homes.

Here is a general guide for the purchase of a first property:

  • You do not have to pay SDLT on properties and land below £125,000
  • Between £125,001 and £250,000 the SDLT rate is 2%
  • Between £250,0001 and £925,000 the SDLT rate is 5%
  • Between £925,0001 and £1.5 million the SDLT is 10%
  • Over 1.5 million the SDLT rate is 12%.

The percentage amount you pay is graduated.

What does this mean?

Well, if you bought a property over £1.5 million you would not be expected to pay 12% on the whole of the price of the property. You pay 2% for the amount between £125k and £250k, 5% from £250,001 to £925k and so on.

He is an example to help you:

If you buy a house that costs £275,000 the stamp duty land tax calculation would be as follows:

  • 0% up to £125,000 = £0
  • 2% on the next £125,000 = £2,500
  • 5% on the final £25,000 = £1,250
  • Total SDLT due = £3,750

All of this changes if you are buying a second home or if the property is a buy-to-let investment. In these scenarios, you will need to pay an additional 3% in SDLT on top of all these rates for each band. The increased rate applies to all properties over £40,000 but it does not apply to caravans, mobile homes or houseboats.

The good news is that you can apply for a refund of this stamp duty if you sell your main residence within 3 years. You must make this refund claim within 3 months of the sale of the property or within 12 months of your self-assessment tax return – whichever come later.

Stamp duty land tax first-time buyers

There has been a lot of worry for the UK government that young people cannot get onto the property ladder, due to the prohibitive price of a property. As a means of helping first-time buyers in England and Northern Ireland, the government raised the limit to properties up to £300,000. This saves the first-time buyer £5000 when buying a property just below the £300k boundary.

However, if the property you are buying is over £500,000 then you are not exempt from SDLT. You will be expected to pay the same rates as other buyers.

You are considered a first-time buyer if you have never owned a freehold or leasehold interest in a residential property in the UK – or abroad. This also must be the main – and only residence – that the first-time buyer owns. If you are married, then both people need to be first-time buyers. If you are not married and only the first-time buyer is named on the lease, then you can claim exemption from SDLT.

Remember though that only the person on the deed can be named on the mortgage – this means the amount you can lend will be limited to that person’s income. This could severely restrict the amount you can borrow.

Also, technically, the property is owned only by the person named on the deeds. This could cause serious issues if a couple split up.

Commercial vs Residential

You will pay SDLT on both commercial and residential buildings – generally using the same system of graduated rates dependent on the purchase price. The rates for commercial property do not continue to rise over £250,000.

This means that you will pay nothing up to £125,000. On the next £125k, you will pay 2% SDLT. Everything over £250k will be charged at 5%.

Leasehold properties offer an extra complication – I am sure you are glad to hear. If the total rent you end up paying on the lease for a residential property is more than £125k then you will also pay 1% SDLT on the portion that is above £125k. If it is a commercial property you will pay 1% on properties between £150k and £5 million and 2% on any price over £5 million.

If you buy properties as a corporate body – e.g. a partnership, partnership or collective investment scheme – then you will pay 15% STLD on residential properties that cost more than £500k. There are exceptions to this – for instance, if you are acting as a trustee or if the property will be used as part of a rental business, is bought by a property developer, will be given over as a public space, is acquired by a financial institution such as a band, will be occupied by employees or is a farmhouse. There are more conditions to these conditions – which are well worth researching in more depth.

If you are buying multiple properties, then there are also potential exemptions. If you are buying 6 or more residential properties in a single transaction, then you will be charged commercial rates of SDLT. If you are buying 2 or more properties from the same seller the total value of the linked transaction will be taken into consideration. In other words, they will be treated as one property.

Final Thoughts...

Although on the face of it SDLT is fairly self-explanatory and straightforward is critical to take some advice and do some further research around the level of stamp duty and land tax that you need to pay for your property transaction.

getting these figures wrong can have a negative impact on your development appraisals and it’s a fairly simple thing to research yourself.

of course, your conveyancing solicitor should always be confirming the level of stamp duty payable on your land transaction.

Not the sexiest of topics, but one that is important to know about and understand… Leave your comments below and let me know what you think of the above article.

All the best,

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