When you buy a home in England or Northern Ireland, you will be subject to Stamp Duty Land Tax (SDLT).
It is usually transferred by your conveyancer when you exchange contracts on your property, and it must be paid within 14 days of closing. Stamp Duty is only paid by persons who are purchasing property, it is not something sellers need to be worried about.
Stamp duty rates are divided into bands and are based on the value of the property. If you’re buying a second home or a buy-to-let property, the rates are different, and in most situations, First time buyers are, in most cases, excluded altogether and will often owe no stamp duty on the property they buy.
What About the Stamp Duty Holiday?
Stamp duty has become increasingly complex with the advent of temporary changes via the various stages of the Stamp Duty Holiday, enacted to help people weather the COVID-19 induced financial crisis.
Some people mistakenly believe that favourable changes to stamp duty rates ended on June 30, 2021. But that’s not actually the case. Home buyers will benefit from a more limited stamp duty relief from July 1, 2021, to September 30, 2021, with the zero rate band set at £250,000.
To take advantage of the lower rates, homebuyers must complete their purchase by September 30, 2021. But what are those rates? At the time of writing, they break down as follows, with stamp duty quoted as a percentage of the agreed final selling price.
- Properties up to £250,000 – 0% stamp duty tax
- Properties priced between £250,001-£925,000 -5% stamp duty tax
- Properties priced between £925,001-£1.5 million -10% stamp duty tax
- Properties priced £1.5 million and over – 12% stamp duty tax
From 1 October 2021, stamp duty rates will return to normal, according to the current government. Previously, the purchase price threshold for paying stamp duty was set at £125,000 and that is a measure that is slated to return.
The figures above are very general, and there are certain circumstances in which the stamp duty paid will be different, if the buyer needs to pay it all. Those circumstances are what we’ll take a closer look at next.
First Time Buyers and Stamp Duty
For first-time buyers, there is a stamp duty on certain properties.
First Time Buyers have been exempt from Stamp Duty on properties up to £300,000 since November 2017 (prior to the announcement of an enhanced lower threshold for all buyers following the coronavirus lockdown). While this has no effect at the moment, when the usual rates return on June 30, 2021, First Time Buyers who purchase a property up to £500,000 will pay no Stamp Duty on the first £300,000 of their property’s purchase price and only be assessed to pay stamp duty on the remainder.
To qualify for the first time buyer exemption, you won’t have to do anything special; your conveyancing solicitor should make sure you meet the requirements and draw up final paperwork that reflects your status.
If you meet the following criteria, you will be eligible for a Stamp Duty exemption as a first time buyer:
- You’re a first-time buyer.
- You’re buying a house to live in, and your cost is less than £300,000. (for no Stamp Duty at all)
- Your property is priced at less than £500,000 (Stamp Duty is only charged on amounts over £300,000).
- Your home is not located in Scotland or Wales. The rules there differ somewhat.
In this scenario, you should make sure you understand what a first time buyer is:
- Even if you have now sold it, you cannot have ever owned a residential home, and this includes inherited property.
- You must not own, or have ever owned, property in another country. And again, this included inherited property.
- Both partners must be first-time buyers if it is a joint purchase.
- It is possible to own business use/commercial property and still qualify as a first time buyer for residential property.
Stamp Duty exemptions for first-time buyers were extended to Shared Ownership houses up to the value of £500,000 starting in 2018. This covers individuals who choose to pay the entire tax amount up front, as well as those who pay a portion and then pay the rest when they staircase on the property and purchase more.
Stamp Duty on Mixed Use Properties
Mixed-use properties are subject to a lower Stamp Duty tax rate than residential buildings.
You pay the following for a mixed-use property:
- 1% on properties priced from £150,000 to £250,000
- 3% on properties priced £250,000 to £500,000
- 4% on properties priced over £500,000
A mixed-use property is one that has both residential and non-residential aspects, according to the HMRC. For instance, think a flat that is attached to a shop.
The following are examples of non-residential property:
- Agribusiness land
- A shop, or other business premises like a garage
- Land or property that isn’t being used as a home
If in a single transaction, more than six residential residences were purchased by the same person. This is because it is assumed that you would be letting out at least five of those properties. If you were to live in all six yourself (how?) standard residential stamp duty rates would apply.
How and When Do I Pay Stamp Duty Tax?
In most cases, your solicitor or conveyancer will take care of Stamp Duty on your behalf. As a general rule, they will submit your return and pay the amount due on the due date, and either add the amount to their fees or (more typically) collect the amount in advance from you.
Stamp duty must be paid within 14 days after the completion of the transaction.
Regardless of whether or not stamp duty tax is due on a property, you must file a return with HMRC. A fine may be imposed if the return is not submitted within 14 days after the transaction’s conclusion.
It is difficult to register a change in property ownership without the certificate issued by HMRC after a return has been accepted. In practical terms, that may prevent you from selling the property easily in the future, so this is something that first time buyers not subject to stamp duty need to be particularly aware of.
Stamp Duty Relief Exemptions
You may be entitled for SDLT reliefs and exemptions in certain circumstances. Stamp Duty reliefs can lower the amount of tax you pay; but, even if no tax is due, you must file an SDLT form to benefit.
You don’t have to pay SDLT or file a return if you meet the following criteria:
- Property is left to you in someone’s will.
- Divorce or separation results in the transfer of property.
- When a house is purchased for more than £125,000, and the seller then agrees to take a lower price (as low as £1000 will qualify).
- When property is given as a gift and no money or other form of compensation is involved.
Caravans and houseboats are exempt from stamp duty as they are movable and, in the case of a houseboat, usually don’t occupy land. If a houseboat comes with a garden, then you will probably still owe stamp duty. The stamp duty rules for buy to let and holiday let homes we cover extensively here.
There are lots of reasons property buyers should have a good accountant on their side, and factoring in the impact of stamp duty tax on their purchase is just one of them. Contact Pearl Lemon Accountants today to chat about just how we can help you.