Stamp Duty Land Tax (SDLT) is the cost people are most likely to forget when they budget to buy a home. This can be a significant oversight as SDLT can run into several thousands of pounds.
The way SDLT is calculated depends on many factors, which we explain below. There are different rates for residential and non-residential purchases but here we’re just going to focus on residential.
The key factors are the purchase price, whether the house will be your main home, and whether you are a first time buyer. There can also be some differences for leasehold properties.
If you are already a homeowner and you are simply moving from one property to another the calculation is fairly simple. The SDLT due accumulates according to the following bands:
- The first £125,000 attracts no tax.
- From £125,000 to £250,000 the rate is 2%.
- For the portion of the purchase price between £250,000 and £925,000 5% is payable.
- Above £925,000 up to £1.5m is taxed at 10%
- And anything above £1.5m attracts a tax of 12%
Example: If you are buying a property for £350,000 you will have to pay £7500. That is made up as follows:
- Up to £125,000 = £0
- £125,000 – £250,000 (£125,000 x 2%) = £2500
- £250,000 – £350,000 (£100,000 x 5%) = £5000
First Time Buyers
If you have not previously owned your own home, you pay no stamp duty for the first £300,000 if the purchase price is less than £500,000. You then pay 5% on anything between £300,000 and £500,000.
If the property is worth more than £500,000 the standard SDLT rates apply (no first time buyer relief). If your spouse already owns a property you will not normally qualify as a first time buyer.
For second homes and buy to let, SDLT rates are higher. Anything over £40,000 attracts a minimum rate of 3%. There is then a 3% surcharge on each of the SDLT bands shown above. You can see the difference in this table:
|Property Price Segment||Standard SDLT Rate||Second Home Rate|
|£0 – 40,000||0||0%|
|£40,000 – £125,000||0||3%|
|£125,000 – £250,000||2%||5%|
|£250,000 – £925,000||5%||8%|
|£925,000 – £1.5m||10%||13%|
It might be the case that you buy a second home and plan to make it your main residence but haven’t yet sold your current home. You will need to pay SDLT rates for a second home. You can reclaim the additional SDLT if you sell your original home within 3 years.
Shared ownership schemes allow you to ‘own’ part of a property and pay rent on the portion that you don’t own. The SDLT rules can become quite complicated based on whether you can, and intend to, gradually increase your share of the ownership and whether you are able to buy the freehold.
You can pay SDLT in a single upfront payment (a market value election), or in stages as you increase your share. If you have to pay a high rent for the part of the property you don’t own this can attract additional SDLT. We strongly recommend getting advice to work out your best option.
In most cases SDLT will be calculated on the price paid for the lease on the same basis as for freehold properties. There can, however, be additional SDLT to pay if there is rent to pay over the life of the lease.
In most cases your conveyancing solicitor will complete the SDLT tax return and pay the tax on your behalf within the specified time. The cost of the SDLT will be added to the fee.