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Stamp duty

Stamp duty

Stamp duty land tax (SDLT) is payable on property and land purchases above set SDLT thresholds. The buyer pays stamp duty, which usually applies to both freehold and leasehold transactions.

Because SDLT can significantly increase purchase costs, it may be worth investigating any stamp duty planning opportunities when considering a property purchase. There is no longer a stamp duty exemption for first-time buyers.

Stamp duty land tax basics

SDLT may be payable on purchases and other transfers of property or land. Most property transactions must be reported to HM Revenue & Customs (HMRC) even if SDLT is not payable.

For residential purchases and leases, SDLT is charged on the purchase price. The way SDLT is calculated was overhauled from 4 December 2014. From that date, SDLT is calculated on the proportion of a property's value in each tax band. SDLT is not payable on the purchase price up to £125,000. Amounts over £125,000 are calculated on the amount of value within each tax band.

For example, if a property was purchased for £185,000, there would be nothing to pay on the first £125,000 and 2% would be payable on the remaining £60,000.

The way SDLT is paid has not changed.

You can use HM Revenue & Customs updated Stamp Duty Land Tax Calculator to work out how much SDLT is payable under the new SDLT regime.

Prior to 4 December 2014, a single rate of SDLT was payable on the whole purchase price on a sliding scale from 0% (up to £125,000, or £150,000 for properties in designated disadvantaged areas) up to 15% (properties over £2m owned by non-natural persons such as companies). There was also an additional 1% stamp duty land tax payable on the total value of the rent payable over the life of a new lease if it was substantial.

If you exchanged contracts on a property before 4 December 2014 but have not completed the sale, you can choose whether to file and pay your stamp duty using the old or the new calculation methods. In most cases, less tax would be owed using the new method.

Residential Stamp Duty Land Tax rates

SDLT rates from 4 December 2014

Purchase price/lease premium or transfer value

SDLT rate paid on the property amount within each tax band

Up to £125,000

0%

£125,001 - £250,000

2%

£250,001 - £925,000

5%

£925,001 - £1.5 million

10%

Over £1,500,001

12%

SDLT rates prior to 4 December 2014

Purchase price/lease premium or transfer value

SDLT rate

Up to £125,000

0%

Over £125,000 - £250,000

1%

Over £250,000 - £500,000

3%

Over £500,000 - £1 million

4%

Over £1 million - £2 million

5%

Over £2 million

7%

Over £2 million and purchased by non-natural persons including
corporate bodies

15%

Residential homes worth more than £2 million attracted a SDLT rate of 7%, with 15% levied on homes over £2 million bought through a company. This high charge aimed to close a legal loophole whereby company-owned properties did not face stamp duty when sold.

For non-residential or mixed use purchases (and purchases of six or more residential properties in a single transaction) similar levels of SDLT apply

Non-residential Stamp Duty Land Tax rates

Purchase price/lease premium or transfer value
(non-residential or mixed use)

SDLT rate

Up to £150,000 - annual rent is under £1,000

0%

Up to £150,000 - annual rent is £1,000 or more

1%

Over £150,000 - £250,000

1%

Over £250,000 to £500,000

3%

Over £500,000

4%

Stamp duty land tax planning

Stamp duty land tax is based on the purchase price of the land and property. Separating out anything else included in a transaction — such as machinery, furniture or carpets — will reduce the taxable price on which SDLT is payable. If this reduction means the price falls into a lower SDLT band, the SDLT payable will also be charged at a lower percentage.

At the same time, you may want to use the opportunity to identify which items will qualify for capital allowances to be set against income tax or corporation tax.

It may be possible to reduce or eliminate SDLT on larger transactions, using complex SDLT mitigation schemes. You should take specialist advice, because HMRC may look to challenge any reduction in the SDLT paid.

You can find more detailed information on SDLT on the HMRC website.

You might also like to see the Stamp Duty Land Tax calculators.