Today – Stamp Duty Land Tax: Everything You Need To Know
Stamp Duty Land Tax: Everything You Need To Know
Buying a new home is one of the largest transactions many of us will ever undertake – and unfortunately, this will often involve no shortage of fees for surveys and legal services.
It’s always helpful to have a preconception of the costs you’re likely to incur. When buying a property in England or Northern Ireland, you will almost certainly be expected to pay Stamp Duty Land Tax on top of your other expenses.
However, Stamp Duty Land Tax isn’t required in all situations, and there are some rules and special cases to consider. In this post, we will offer an introduction to the tax and explain everything you need to know.
What is Stamp Duty Land Tax?
Introduced in the 2003 Finance Act, Stamp Duty Land Tax is a charge that must be paid to HM Revenue & Customs on all property transactions (with some exceptions) in England and Northern Ireland. Scotland and Wales each have their own systems, known as the Land & Buildings Transaction Tax (LBTT) and Welsh Land Transaction Tax (LTT) respectively.
The tax is sometimes referred to colloquially as just ‘stamp duty’, but there is a technical difference – stamp duty itself was the earlier tax that was replaced by the 2003 legislation. However, there are few practical differences between the new and old systems (the most notable change being that modern documents no longer need to bear a physical stamp).
Stamp Duty Land Tax is due on all residential property transactions worth more than £125,000 (or £150,000 for non-residential purchases). This is charged on a tiered basis, where the tax is only payable on the amount above the threshold – in other words, a buyer purchasing a residential property for £225,000 would only be expected to pay tax on £100,000 of the transaction.
Fulfilling Stamp Duty Land Tax obligations
The rate tiers for Stamp Duty Land Tax are as follows:
- £0 – £125,000: 0% tax rate
- £125,001 – £250,000: 2% tax rate
- £250,001 – £925,000: 5% tax rate
- £925,001 – £1.5 million: 10% tax rate
- £1.5 million+: 12% tax rate
For leasehold properties, Stamp Duty Land Tax will be due on the purchase value of the lease – and the amount may depend on whether it’s an existing or new lease.
There is also relief offered for first-time buyers where the purchase price of the property is less than £500,000. This essentially means that tax will not be due on up to £300,000 of the property price (anything over this threshold is taxed at the normal rate).
However, for buyers who are married and buying a property between them, they both need to be first-time buyers to qualify for the relief.
There are some situations in which Stamp Duty Land Tax doesn’t have to be paid at all and no return is necessary – for example if a property is gifted to another person in a will, or if there is an ownership change because of a divorce or dissolution of a civil partnership. However, other taxes might be relevant in these situations instead (such as inheritance tax).
All property transactions must be reported to HMRC for their records, even if no tax is due. This must be done within 14 days of completing the transaction (and failure to do so can result in a fine from the government organisation).
Once the tax return has been received by HMRC, they will issue a certificate. This document is important and should be kept as it is needed to register any ownership change for the property.
The SDLT return and payment of tax will be taken care of by the conveyancing solicitor, who will also be able to help with claiming any relief for which they might be eligible.
The history of Stamp Duty
The rules around Stamp Duty Land Tax change from time to time, and the Government’s annual budget announcements have included multiple reforms to various aspects of the tax since its inception in 2003.
The most recent of these occurred in 2015, when Chancellor George Osborne announced that purchases of second homes would incur a 3% surcharge over the normal rate of tax. Unlike regular stamp duty, this is charged as a ‘slab tax’ (in other words, 3% of the entire amount – not just the portion above the threshold).
However, the history of stamp duty in its original form goes back much further. Initially introduced in 1694 during the reign of William III and Mary II, the first incarnation of the tax was focused on “vellum, parchment and paper”. Over the following 150 years, its scope was systematically expanded to cover medicine, newspapers, lottery tickets, playing cards, clothing and a wide array of other commodities.
In contrast to today’s tax, stamp duty was imposed as a fixed amount until the end of the eighteenth century (regardless of the value of the transaction).
Looking forward, there has been some discussion in government of possibly increasing Stamp Duty Land Tax rates in the future for purchases completed by non-UK residents (technically defined as anybody who spends fewer than 183 days in the country each year). It’s not clear when we will see this come into effect – whether 2020 or beyond.
At present, it’s easy to anticipate how much tax you will be expected to pay and budget accordingly. The government has provided a free stamp duty calculator, which allows for a quick and easy prediction of your tax responsibility.
Overall, Stamp Duty Land Tax needn’t be mysterious or difficult to understand. With the help of a good property solicitor, the process should be very straightforward – and you will be able to move into your new home with all of the paperwork finished and filed away.
This post was contributed by Girlings Solicitors – expert residential property solicitors based in Canterbury, Ashford and Herne Bay. With nearly 140 years of experience providing personal, business and not-for-profit legal services, Girlings is one of the largest and oldest law firms in Kent.