A Guide to Stamp Duty
There are three types of Stamp Duty:
- Stamp Duty Land Tax (SDLT) – which applies to land transactions
- Stamp Duty Reserve Tax (SDRT) – which applies to sales of securities on the stock market; and
- Stamp Duty – which applies to the sale of shares and securities.
In all cases the purchaser must pay the duty based on the price paid or value if not paid in cash.
Stamp Duty Land Tax
Stamp duty land tax is a tax on the acquisition of interests in UK land including houses, flats, other land and on both the grant and assignment of leases.
The purchaser is responsible for the payment of the tax and filing of the land transaction return, although is normally done by their solicitor on their behalf. The return should be filed within 30 days of the transaction.The 30-day filing window is expected to be reduced to 14 days in respect of land transactions with an effective date on and after 1 March 2019.
SDLT is payable whether or not the parties to the transaction are based in the UK and whether or not a document is used. The consideration on which SDLT is paid is money or money’s worth and where consideration is contingent it is payable on the assumption that the contingent consideration will be payable.
SDLT is also charged on any VAT included in the transaction.
If you are buying land or property, the amount of SDLT payable is dependent upon the purchase value as shown in the following table with a higher starting point for land in designated disadvantaged areas …
Residential Rates on purchases from 8 July 2020 to 31 March 2021
If you purchase a home (whether you are a first time buyer or have owned property before between 8 July 2020 and 31 March 2021 you will pay SDLT at the following rates:
Rate Property Value
0% £0 to £500,000
5% £500,001 – £925,000
10% £925,001 – £1.5 million
12% Over £1.5 million
The 3% supplement for purchasing additional properties still applies during this time.
Rate Residential Non-Residential
0% £0 to £125,000 Up to £150,000
2% Over £125,000 – £250,000 Up to £250,000
5% Over £250,000 – £925,000 Over £250,000
10% Over £925,000 – £1.5 million
12% Over £1.5 million
As announced at Autumn Budget 2017, the government will legislate in Finance Bill 2017-18 for a new relief from SDLT that will permanently raise the price at which a property becomes liable for SDLT to £300,000 for first-time buyers. Those claiming the relief will pay no SDLT on the first £300,000 of the consideration and 5% on any remainder. No relief will be available where the total consideration is more than £500,000.If enacted, the relief will apply to transactions with an effective date on or after 22 November 2017.This measure does not apply in Scotland. SDLT was devolved to Scotland on 1st April 2015. If enacted, this measure will apply in Wales until 1 April 2018, when SDLT will be devolved to Wales.
Higher Rate for Corporate Bodies
Residential properties bought for over £500,000 are subject to SDLT at the rate of 15% where the property is acquired by a non-natural person such as a company, partnership or collective investment scheme. For sales in the period: 22 March 2012 to 19 March 2014 the 15% rate of SDLT only applied to properties sold for £2 million or more where the buyer was a non-natural person.
Higher rates for additional properties
You’ll usually have to pay 3% on top of the normal SDLT rates if buying a new residential property means you’ll own more than one.
As announced at Autumn Budget 2017, the government will legislate in Finance Bill 2017-18 to improve the operation of the Higher Rates of SDLT by granting relief from tax in certain cases where:
- a court order issued on a divorce or dissolution of a civil partnership prevents someone from disposing of their interest in a main residence
- a spouse buys property from their spouse
- a person buys a property in a child’s name or on a child’s behalf, where they are doing so in their capacity as the deputy of that child
- a purchaser adds to their interest in their main residence
The government will also introduce a new rule to prevent abuse of relief for replacement of a purchaser’s only or main residence, by requiring the purchaser to dispose of the whole of their interest in their former main residence and to do so to someone who is not their spouse. If enacted, these changes will have effect on and after 22 November 2017.
Grant and Assignment of Leases
Stamp duty land tax is applicable to both lease premiums and to the rental element of a lease.
New leasehold sales and transfers
Residential
When you buy a new residential leasehold property you pay SDLT on the purchase price of the lease (the ‘lease premium’) using the rates above.
If the total rent over the life the lease (known as the ‘net present value’) is more than £125,000, you also pay SDLT of 1% on the portion over £125,000 – unless you buy an existing (‘assigned’) lease.
Non-Residential
When you buy a new non-residential or mixed use leasehold you pay SDLT on both the:
purchase price of the lease (the ‘lease premium’) using the rates abolve
value of the annual rent you pay (the ‘net present value’)
These are calculated separately then added together.
If you buy an existing (‘assigned’) lease, you only pay SDLT on the lease price (or ‘consideration‘).
The net present value (NPV) is based on the total rent over the life of the lease. You don’t pay SDLT on the rent if the NPV is less than £150,000.
Net Present Value of Rent SDLT Rate
£0 to £150,000 Zero
The portion from £150,001 to £5,000,000 1%
The portion above £5,000,000 2%
Stamp Duty Reserve Tax
Stamp duty reserve tax is mainly dealt with by Stock exchange brokers and financial intermediaries.
SDRT is charged at 0.5% on the value of the consideration for the transfer. It is cancelled by the payment of Stamp Duty on the same transaction.
Stamp Duty
This only applies to the transfer of shares and securities and is levied at 0.5% of the value of the chargeable consideration, rounded up to the nearest £5, on each document to be stamped.
Where the consideration is £1,000 or less, these transactions will be exempt from stamp duty and will not need presenting for stamping.
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For further information on any type of stamp duty please contact us.
