STAMP DUTY EXPLAINED

THE AMOUNT YOU ARE CHARGED IN STAMP DUTY DEPENDS ON BOTH YOUR PROPERTY PURCHASE AND YOUR STATUS – WE LOOK AT THE TAX IN CLOSER DETAIL

Stamp Duty Land Tax, often referred to as SDLT or just Stamp Duty, is a tax paid to the Government when freehold property or a leasehold home is purchased, based on the purchase price. The tax has to be paid within 14 days of completion, but your solicitor will usually ask for it in advance.

The rates of Stamp Duty vary from zero up to 15%, with lower rates for first time buyers and cheaper properties and higher rates for limited companies, second home owners, nonresident foreign buyers and expensive properties. The Government can vary the rates – for example, the “Stamp Duty Holiday” that ran from July 2020 to June 2021 removed Stamp Duty on the first £500,000 of a property purchase to give the market a boost after lockdown.

Changes were made to rates again in the mini-Budget last September, when then Chancellor Kwasi Kwarteng made what was to have been a permanent change, increasing the residential nil-rate tax threshold – the part on which no SDLT is charged − from £125,000 to £250,000. He also increased the nil-rate band for First Time Buyer’s Relief from £300,000 to £425,000 and raised the maximum eligible property value from £500,000 to £625,000. However, incoming Chancellor Jeremy Hunt moved the goalposts in his Autumn Statement in November, making the changes temporary, with an end date of 31 March 2025. So here is a summary of the situation:

First Time Buyers

First Time Buyer’s Relief means that while Stamp Duty becomes payable over £250,000 for most people, for those buying their first home to live in, the nil-rate band is extended to £425,000, meaning that anyone buying a first home for less than this will pay no Stamp Duty at all. This relief can be used where the value of the house is up to £625,000, with the amount between £425,000 and £625,000 charged at 5%.

To benefit from the relief, buyers must not own, or have ever owned, any residential property anywhere in the world – this includes shares in an inherited home, a buy-to-let property or a holiday home, even if it has been sold. Unfortunately, if just one of the buyers doesn’t meet the criteria, the whole purchase is charged at standard rates instead. From 1 April 2025, the relief will go back to the previous FTB rate of a nil-rate band of £300,000 on a maximum purchase of £500,000.

Standard Rates

Where one, or both buyers have owned property in the past (but no longer) or are selling their main home to buy a new main home, then standard rates apply. These are at a lower rate until 1 April 2025, with the first £250,000 being free from SDLT, then 5% on the portion from £250,001 to £925,000, 10% on £925,001 to £1.5m and 12% for more expensive homes. Afterwards, it will revert back to a lower nil-rate band of £125,000 and 2% on the portion from £125,001 to £250,000, with higher bands remaining the same.

Stamp Duty Surcharge

There is a further complication if, at the time of completion, one of the parties already owns a home, as this means the whole purchase becomes liable for a higher rate of Stamp Duty. The Stamp Duty Surcharge is an additional 3% on top of the standard rates of SDLT for people purchasing a buyto-let, second home or holiday home, but it can also catch out regular buyers if a sale hasn’t completed before a purchase is made. In this situation buyers can obtain a refund of the surcharge if the previous main home is sold within three years.

Shared Ownership Buyers

The situation with shared ownership can be complex as there are two options. The first, “market value election”, means paying Stamp Duty on the whole property value up front (regardless of the share you are purchasing), taking advantage of First Time Buyer Relief if eligible. No further SDLT is payable when staircasing at a later date. The second option is to pay Stamp Duty on the share purchase only, but you may have to pay further amounts when you staircase in the future. Ask your solicitor for advice on the best choice.