When you purchase a property or land over a certain price in England and Northern Ireland, you’re required to pay Stamp Duty Land Tax. Over the years, the government has made changes to the tax with the recent efforts made to ensure it doesn’t hold back first-time buyers, as our personal tax accountants explain.
What is Stamp Duty Land Tax?
Stamp Duty Land Tax or SDLT is a tax charged on the purchase of property or land over £125,000 for residential properties and £150,000 for non-residential properties in England and Northern Ireland. Your tax is different if your property or land is in Scotland or Wales. On this gov.uk page, you can find a calculator which can work out the SDLT you’re liable for.
Stamp Duty Land Tax changes
Stamp Duty Land Tax was first introduced in England and Northern Ireland in 2003. The threshold for residential properties was raised from £60,000 to £120,000 in 2005, then to £125,000 a year later which continues to this day.
In 2014, the Government made another reform by removing the slab element, meaning the tax is paid on the amount above a certain threshold rather than one rate on the total amount. It is done so to be fair and to lower the amount you’re liable for in many instances. For example, if you sold a house for £500,001 before 2014, you were liable for £20,000 in SDLT. If you’re selling the house for the same amount after 2014, your SDLT is only £15,000.
In 2016, the Government introduced a 3% surcharge over the standard rate for buyers of second homes.
In 2017, first-time buyers don’t have to pay any Stamp Duty tax up to £300,000, then 5% on the portion from £300,001 to £500,000. If the purchase price is above £500,000 you will pay the standard rates.
When to pay
You’re required to pay Stamp Duty within 30 days of purchasing your property, otherwise you risk a fine plus interest. The process of paying is simple – you go to this gov.uk page and fill in a SDLT return form. Do note that you still need to fill in a SDLT form even if your home is less than £125,000 for non-first-time buyers.
Is there a way to reduce the Stamp Duty Land Tax?
Some people would advise you purchase a piece of land and build the house yourself, while some may suggest using a Limited Company to purchase. It is best for you to discuss your situation with an experienced Tax Accountant first for an obvious reason – it is a criminal offence to evade Stamp Duty Land Tax and we don’t encourage anyone to take short-cuts. Also, purchasing a property through a company actually requires you to pay a 15% tax, although there are certain conditions where the 15% rate does not apply, such as when the company acts in its capacity as a trustee of a settlement.
Berley can help with Stamp Duty Land Tax and other personal tax matters
Stamp Duty Land Tax is straightforward and the current law is designed to help first-time buyers and be fair to non-first-time buyers too.
However, SDLT exemption can be far-reaching and complicated. For instance, to purchase a leasehold property, have an alternative property finance, inherit a house from a relative, sell your house due to a divorce, are some of the exemptions and a few of them have specific conditions attached.