Stamp Duty Land Tax (SDLT) can be one of the most confusing costs for people buying property, as there are many rules and exemptions to take into consideration when calculating the amount of tax payable. In this blog, Lauren Greenop, Trainee Solicitor from our residential property team, sets out the basics every buyer should understand before committing to a purchase.
What is Stamp Duty Land Tax?
SDLT is a land tax which is paid to HMRC when you buy a property or land in England or Northern Ireland, and the cost is borne by the purchaser. It applies to most purchases above a certain value, and in most cases, is dealt with at the end of the transaction by the conveyancer or solicitor whom you have instructed.
SDLT is a tiered tax based on the purchase price of the property and a few buyer circumstances.
First-Time Buyer Relief: What You Need to Know
If you are buying your first home, you may qualify for relief that removes or reduces the amount of SDLT payable. This was designed to help people onto the property ladder by hopefully making the house-buying process more affordable.
One catch is that the property’s value still matters. As an eligible first-time buyer:
- You will not have to pay Stamp Duty on properties costing up to £300,000.
- On property costing between £300,001 and £500,000, you pay 5% on the portion above £300,000.
If the property costs more than £500,000, first-time buyer relief does not apply at all, and you pay the standard rates on the full price.
Many people are also under the impression that if they have not owned a property for a considerable period of time, they are reinstated as a First-time Buyer. However, that is not the case. HMRC treats a first-time buyer as someone who has never, alone or with anyone else, held a major interest in a dwelling, or the equivalent in land, anywhere in the world, regardless of what that interest was worth. This includes property which has been inherited or gifted, even if you never lived in it.
If you are buying a property with another person, to be eligible for First-time Buyer Relief, all purchasers must meet the condition mentioned above.
A useful guide on Stamp Duty Land Tax can be found on the government website here: https://www.gov.uk/stamp-duty-land-tax/residential-property-rates
Buying an Additional Property
If you already own a home and you are purchasing another, such as a rental or holiday home, you may be liable to pay higher SDLT rates. The higher SDLT rate imposes a 5% surcharge on the standard rate unless you are replacing your main residence.
Use the SDLT calculator or check the higher rates to work out how much tax you’ll pay.
If You are Replacing Your Main Residence
Many people become confused about what is classed as replacing their main residence.
For a property to be classed as a main residence, it must be owned by you (the purchaser of the new property or their spouse/civil partner), as well as occupied by you as your main residence.
You may have to pay a higher rate even if you intend to live in the property you are buying. Higher rate tax is only waived if you intend to live at the property you are buying and have sold or given away the last main home you owned before completion of your new purchase.
If you have moved in with a partner, are not married, have no interest in the house (not partly owned), and you still own your old home, you will be liable to pay a higher rate, as this is not classed as replacing your main residence.
Plan for Stamp Duty Before You Commit
SDLT is an important consideration when buying a property. Understanding the basics at the outset can help you plan your finances and avoid any last-minute surprises near completion.
SDLT rules are extensive and do change, so it is always worth checking the current guidance or taking professional advice regarding your own situation before committing to any purchases. If you would like help working out where you stand, our friendly residential property team would be glad to talk it through with you. Get in touch to find out how we can help. You can call us on 0330 175 5655 or email: info@bglaw.co.uk.
Read some of these related articles for further guidance:
- Buying Together? Choosing the Right Way to Own Your Home
- Living Together but Not Married? The Cohabitation Rights Every Couple Should Know
- A Guide to Property Searches: Protecting Your Next Move
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Berlad Graham is accredited by The Law Society’s Conveyancing Quality Scheme (CQS), a recognised quality standard for SRA-regulated firms in residential conveyancing. It sets out the standards of competence, risk management and client service levels expected of practices.
To find out more about our residential property practice, click here.
This article is for general information only and does not constitute legal or tax advice. SDLT rules and rates can change, and specific advice should be taken on the facts of any particular purchase.
