A Guide to Stamp Duty Calculation
Stamp Duty is a tax that is paid on property and land purchases in the UK and applies to both freehold and leasehold properties.
Depending on where you are purchasing your property in the UK, there will be varying rates and differing names. So, in England or Northern Ireland it is known as Stamp Duty Land Tax (SDLT), in Scotland it is known as Land and Buildings Transaction Tax (LBTT), and in Wales it is known as Land Transaction Tax (LTT).
Standard Stamp Duty Rates
The type of property you purchase and the amount that you pay for it determines your Stamp Duty rate. The tax is calculated by different bands that represent a certain threshold:
Band 1: £0 to £125,000 – Stamp Duty Rate = 0%
Band 2: £125, 001 to £250, 000 – Stamp Duty Rate = 2%
Band 3: £250,001 to £925,000 – Stamp Duty Rate = 5%
Band 4: £925,001 to £1.5m – Stamp Duty Rate = 10%
Band 5: Above £1.5m – Stamp Duty Rate = 12%
If you are a first-time buyer and you complete your purchase on or after 22nd November 2017 and the price is £300,000 you will pay no SDLT. If the purchase price is between £300,000 and £500,000, first-time buyers will pay a discounted amount of Stamp Duty at 5% on the amount. If the property is over £500,000, no relief or discount will be applied.
You will pay Stamp Duty when you buy either a freehold property, a new or existing leasehold, or a property through a shared ownership scheme. Also, if you take on a mortgage or buy a share in a house, you will have to pay Stamp Duty at the standard rates stated above.
Second Home Stamp Duty Rate
Since 1st April 2016, if you decide to buy a second home and completion was after this date, you will have to legally pay an additional 3% Stamp Duty Land Tax if the property is over £40,000. This also applies to holiday homes abroad and to UK expats and foreign nationals who own additional homes abroad but are seeking to buy another home in the UK. Finally, If you are a first-time buyer, or anyone else you’re buying with are first-time buyers but own a second home, then you both you will caught up by the sub charge.
The additional 3% sub charge will generally apply to additional property purchased by a limited liability company. This will apply to both existing companies and new companies set up purposely for the purchase of additional property.
Here is how the tax is calculated by different bands that represent a certain threshold:
Band 1: £0 – £125,000 – Stamp Duty Rate = 3%
Band 2: £125,001 – £250,000 – Stamp Duty Rate = 5%
Band 3: £250,001 – £925,000 – Stamp Duty Rate = 8%
Band 4: £925,000 – £1.5 Million – stamp Duty Rate = 13%
Band 5: Over £1.5 Million – Stamp Duty Rate = 15%
If you already own more than one home, but are replacing your main residence, then the stamp duty sub charge will not apply. Also, if you replace your main residence within 3 years of the sale of your main residence then you will be entitled to a refund on the sub charge paid at the time of purchase of the new residence.
If you purchase a caravan, houseboat or mobile home as your second home, this is not applicable; other exemptions are commercial property, agricultural land, forest and any other property which is not used as a residence.
Whenever you buy a property, whether it’s your first or your second home, you have 30 days to complete a Stamp Duty Land Tax return and pay the applicable stamp duty land tax due on the transaction. If you exceed this deadline, you will be liable to a penalty fee as well as interest on the due amount.
If you need further information about Stamp Duty or any other property-related advice, get in touch with one of our solicitors today.