Stamp Duty Land Tax – Client Guide
At the start of the transaction we need you to assess how much stamp duty you will have to pay on completion of the purchase.
We will draft the tax return based on the information you give to us, therefore, it is your responsibility to give us the right information and we will not have any responsibility to check that the replies you give to us are correct.
What Rate Will You Pay?
The stamp duty rates are in three different categories: -
- First time buyer.
- Standard rate for home movers.
- Buy to let, second or holiday home rate (higher rate).
We will need you to tell us which category of transaction you fall into.
1. First-Time Buyer:
First-time buyers are exempt from stamp duty on properties up to £300,000. If they buy a property up to £500,000 they pay no stamp duty on the first £300,000 and only pay on the remaining amount.
You qualify for the stamp duty exemption if:
- You are a first-time buyer.
- You are buying a home that you will live in.
To be defined as a first-time buyer;
- You must never have owned a property or a substantial interest in a property. (more than 25% ownership).
- You must not have inherited a property
- You cannot have owned a property abroad.
- You both must be first time buyers if buying jointly.
- You can own a commercial property.
2. Standard Rate for home movers:
Standard rate is payable when you buy a property you are planning to live in (and you have owned a property before). This rate applies if you will only own one property when you have completed the purchase of your new property i.e. you are replacing your main home.
3. Higher Rate- Buy to let, second or holiday home rate:
If you are buying a second residential property for more than £40,000 you will normally have to pay the higher rates as set out below. However: -
- If you do not currently own any property (for example, if you are renting) the higher rate will not apply whatever you intend to use the property for. Higher rate only applies if you already own at least one property and you are not selling your existing main residence to replace it with the new purchase property.
- Joint buyers are treated as one unit. If one buyer owns a property or share in a property then the higher rates will still be charged.
- Properties owned anywhere in the world will be taken into account.
This is a very complex tax to apply in some circumstances. There are some examples set out below if you have any doubts you should raise them with your conveyancer.
- You rent your home and own a buy to let property. You sell it and purchase another buy to let. At the end of the transaction you only own one property so the standard rate applies.
- You are a buy to let investor with 10 residential properties and you own your own home. You decide to sell your home and purchase a new one. At the end of the day of the transaction you own 11 properties. However, as you will have replaced your main residence you pay the standard rate.
- You own your own home as well as a buy to let property. You sell your buy to let property and purchase another. At the end of the day of the transaction you own two properties. A new property has not replaced your main residence so the higher rate applies.
The diagram below shows a basic outline of how the new rules are applied.
Assuming that there is nothing unusual about the transaction and based on the information you give us, we will estimate the amount of SDLT payable on the transaction as accurately as we can.
We cannot advise on complex tax issues. If there are unusual circumstances or tax complications, then specialist advice will be needed before we take any steps in the transaction. We would advise that this is done at an early stage so that you know how much tax will be payable.
You pay tax on the “consideration” for the deal. This is normally the price stated in the transfer deed but it might also include the value of anything that you are paying for separately. It will also include any cash paid over direct and not recorded in the contract, or where you pay any of the seller’s fees or expenses or take over all or part of a debt or mortgage.
Similarly, the amount of tax paid might be less than the figure on the transfer where not all the amount is paid over because the seller offers a discount, or gifts part of the purchase price.
You must tell us if there is any other aspect of the deal not mentioned in the purchase documents, and whether there are other properties involved in the deal you have agreed with the seller.
If a conveyancing chain breaks down and you decide to buy your new home without selling your old home, you will as a result own two properties for a short time. If this happens, you would have to pay the higher rate on your new home and claim it back when you sell your old home. We cannot fund this extra tax for you, even for a short period.
Providing false information may lead to financial penalties and prosecution should HMRC investigate the stamp duty land tax return. This is of particular note for parties purchasing a second property where they are not replacing their main home, purchasing for the first time in their own name where a spouse or partner already owns a property or declaring themselves as first-time buyers. We do not have information with regards to all your assets outside of a transaction and/or previous transactions, and so we rely on the information and declarations you provide.