We’re kicking off 2022 with a thrilling look at Stamp Duty Land Tax and all the pesky little technical details you didn’t know you needed to know. Think multi-dwelling relief, second property tax and additional levies for overseas buyers.
Still with us? Really? We’ll assume you’re either bonkers or desperate. Okay, okay. Jokes aside, sometimes you really do need to read about this stuff. If you’ve found yourself in this situation, know that we are sending you our deepest sympathies.
We’ll make clear up front that we are not stamp duty wizards and we absolutely do not provide legal advice on technical stamp duty. For that you’ll need to speak to an accountant or specialist barrister.
However, before you start hiring specialists/crying into your moving boxes, here’s a not-so-brief primer on all the stuff you didn’t know you needed to know.
What the heck is Stamp Duty?
If you’ve got no clue what the dickens we’re talking about, we’ve got you. Stamp Duty Land Tax (sometimes known simply as ‘stamp duty’ or the not-actually-that-catchy acronym SDLT) is a tax payable on property transactions in England or Northern Ireland. Scotland and Wales have their own equivalents: we’re not going to complicate things even further by rabbiting on about them, too.
How much Stamp Duty will be payable on your transaction depends on:
- Whether you’re a first-time buyer
- Your current geographical location
- The purchase price
- Whether you’ve managed to buy during some kind of tax relief holiday
- Whether you’re buying residential or commercial
- How many properties you’re buying
- Whether you’re planning on renting out the property
- Whether you’re buying a second (or third, or fourth) property
- The phase of the moon at midnight on completion day
(Alright, we made that last one up.)
So, how much will you actually need to pay? If ‘stonking big bill’ is not specific enough, you can use HMRC’s handy SDLT calculator to work out an exact figure.
Stamp Duty Exemptions and reliefs: the ‘interesting’ stuff
Now we’ve got the basics out of the way, here’s where things get really interesting. (FYI, by ‘interesting’, we mean both dull and hair-pullingly frustrating).
There are a range of exemptions and reliefs certain individuals may be eligible for in certain scenarios. Some are reasonably simple to work out, some of them require a degree in gobbledegook to get your head around.
Let’s ease ourselves in gently with the simple ones: exemptions fo r first time buyers and those who are buying property under the Stamp Duty threshold.
First time buyers will not have to pay a penny SO LONG AS everyone they are buying with is also a first-time buyer (we appreciate that you might have decided the house your partner bought with their ex ‘doesn’t count’, but unfortunately HMRC will not agree), and the purchase price is under £300,000. If the property you’re buying is between £300,000 and £500,000, you’ll pay a reduced rate of SDLT. If it’s above £500,000, you’re probably not short of a bob or two and it shouldn’t be too much of an issue that you’ll miss out on the discount completely.
You’ll also avoid SDLT if you’re buying a real bargain as your main residence. For these purposes ‘real bargain’ means a purchase price of under £125,000 for residential properties and under £150,000 for commercial ones. (Though, please note, your conveyancer will still need to send a SDLT return on your behalf if the purchase price is over £40,000).
What if you are not a first-time buyer or replacing your main residence?
On the getting-more-complicated side of things, this is the non-standard stuff that it really pays to get expert advice on. (Please trust us on this. After all, we’ve been around the block and seen it all before.)
In some circumstances there may also be reliefs for building companies, employers, property developers and local councils. Companies within the same group who buy or sell property to each other may get SDLT relief, as may charities and relevant housing providers.
There is also such a thing as multi-dwelling relief. This kicks in if you’re buying multiple properties in one transaction or a series of linked transactions. For example, this might be buying a collection of holiday cottages, buying an estate, buying a building that has been split into flats or buying a property that includes a Granny annexe or guest house.
In these cases, you may be able to reduce the amount of SDLT due by doing a complicated sum in which you have to divide the total purchase price by the number of dwellings, work out the tax due on that figure, then times that figure by the number of dwellings again. You can also choose to pay commercial SDLT rates instead if you’re buying six properties or more and the sums work out better that way. See: we told you you’d need an expert.
However! All reliefs come with something of a caveat. If the circumstances change within the three years following the transaction (e.g., you bulldoze poor Granny’s annexe or you stop using a property for charitable purchases) you may have to pay back the SDLT you saved.
Do some people pay more?
As if SDLT bills weren’t big enough, in some cases you might have to pay more than the standard amount.
Additional levies for overseas buyers
A key example of this are the additional levies for overseas buyers. If you’re currently resident somewhere other than the UK, you may well have to pay a 2% surcharge on top of any standard SDLT that’s due. (Unless you happen to be living overseas as a result of your employment by the Crown, in which case they’ll let you off the extra 2%).
Surcharge tax on second homes or investment properties
If you’re buying a property without selling or giving away any existing property you own, you’ll be subject to the higher rate of SDLT.
This is true whether you own multiple mansions, you’re buying a bolthole for your secret lover, you were left a share of your parents’ home in their will, you’re completing on your new home before the sale of your old one is finalised, or you’re a trustee of a property owned by your young child. (Little tip from us: ‘moveable’ properties like houseboats and mobile homes don’t count, so if you stick your secret lover in a static caravan in Blackpool you won’t need to worry about SDLT).
On the plus side, if you do get stuck with an eye-wateringly big bill for a second property, you can get a refund if you sell or give away your previous main home within three years.
The bottom line
Folks, the key thing we’re trying to get across here is that there are almost certainly a lot of things you don’t understand about the wild and tangled web of Stamp Duty Land Tax.
If you’re doing anything other than a straight-forward transaction where you complete a sale on property A on the same day you buy property B, we highly, heavily, seriously recommend you seek independent tax advice from an expert.
Anyone still reading?! If you’ve made it this far, consider yourself reader of the month. If you haven’t yet got your fill of technical SDLT chat, or if you need some serious advice from someone more sensible than us, give us a bell and we’ll point you in the direction of a suitable expert.