UPDATE 22ND NOVEMBER 2017: It was announced today that first-time buyers will now be exempt from paying Stamo Duty on the first £300,000 of properties up to the value of £500,000. Find out more about first-time buyer Stamp Duty implications.
There are many things you must take into consideration when buying a new home, and one of those is Stamp Duty.
Stamp Duty Land Tax (SDLT) is charged by the government when you buy a property in England, Wales or Northern Ireland that costs more than £125,000.
There’s no avoiding the tax if the property is within this price bracket, and the higher the price of the property, the more you will have to pay.
We’ve outlined the information you need to know about Stamp Duty, including changes to the system introduced on April 1, 2016.
How it’s calculated
SDLT is calculated based on the value of the home. The table below explains how the rate you pay varies depending on the price of the property.
Purchase Price SDLT Rate Payable
Up to £125,000 0%
The portion from £125,001 up to £250,000 2%
The portion over £250,001 up to £925,000 5%
The portion over £925,001 up to £1,500,000 10%
Everything over £1,500,001 12%
For example, if you bought a property for £350,000, the SDLT payable would be:
0% on the first £125,000
2% on the second £125,000 (£2,500)
5% on the final £100,000 (£5,000)
You would pay a total of £7,500 in SDLT.
How to pay SDLT
When buying a new home, most people will appoint a solicitor or conveyancer to help them through the buying process. They will also take charge of paying the SDLT on your behalf. A SDLT1 tax return needs to be filled in for every property purchase valued at more than £40,000, regardless of whether or not any SDLT will be paid.
“It’s important you go through the tax return carefully with your solicitor to make sure the information is correct, as you would be liable for any inaccuracies or false information,” explains Sue Platts, Senior Residential Property Lawyer at Taylor Bracewell.
The SDLT1 form needs to be completed and submitted within 30 days of the legal completion of your property purchase. The government must have received any SDLT you need to pay within this time.
In the event you’re buying your new home with the help of a mortgage, your lender won’t allow the solicitor to complete the purchase unless you’re ready to pay the SDLT. Your solicitor will ask you to have the Stamp Duty payment in place for legal completion day.
Exceptions for paying SDLT
If the home you’re buying costs less than £125,000, you won’t have to pay SDLT. Figures from Land Registry show that as of January 2016, the average house price in England and Wales stood at £191,812, meaning most buyers will end up paying the tax.
Stamp Duty doesn’t apply if you’re left a property in a will or receive it as a gift – however other taxes might apply such as inheritance tax. You will also be exempt from SDLT if the home has been transferred to you following a divorce, separation or the end of a civil partnership.
Stamp Duty changes on April 1
Investors and second homeowners need to be aware of a number of changes to Stamp Duty, which came into effect on April 1, 2016. If you already own residential property and purchase more, you need to pay an extra 3% of SDLT on top of the standard rate.
The only exception is if you are buying a new home to replace your existing one.
“Properties under £40,000 are still exempt from the requirement to pay SDLT or complete a return, but if the purchase price is over £40,000, you must pay SDLT on the full purchase price,” says Sue, who is one of Strata’s recommended panel of conveyancers.
The following SDLT rates will apply to property investors from April 1:
Purchase Price SDLT rate payable
Up to £125,000 3%
The portion from £125,001 up to £250,000 5%
The portion over £250,001 up to £925,000 8%
The portion over £925001 up to £1.5 million 13%
Everything over £1,500,001 15%
Considerations for joint owners
Buying a home with the help of a friend or family member can help you get onto the ladder more quickly, but did you know it could also affect how much Stamp Duty you pay? Up to four people can be registered as joint legal owners of a property, reveals the HomeOwners Alliance, but if one of them already has a home, the higher rate of SDLT will apply.
It doesn’t matter whether one of you is a first-time buyer – if you’re buying with someone who is an investor or a second homeowner, 3% extra Stamp Duty will apply. This is something you will need to take into account when setting a budget for buying your new home.