When buying a residential property in England or Northern Ireland, you have to pay a progressive tax called Stamp Duty Land Tax. In Scotland, buyers are liable for the Land and Buildings Transaction Tax (LBTT), and for Wales, it’s the Land Transaction Tax (LTT). Stamp Duty applies to leasehold, freehold and joint ownership real estate, regardless if it’s a mortgage or an outright purchase. This tax is critical in any transaction, and it helps if a buyer comprehends its mechanisms. You should be able to calculate how much stamp duty a particular piece of property will incur. Aspects such as exemptions and grace period are vital as well.
Where Does Stamp Duty Apply?
Anyone buying a residential piece of real estate in England and Northern Ireland should factor in this tax. Eligible parties include corporate entities, non-natural persons and overseas buyers. Stamp duty kicks in if the property costs more than £125,000. Mobile homes, caravans, lodges and houseboats are exempt. You also don’t have to pay SDLT for willed or gifted properties. The same applies to real estate acquired from a separation, divorce or termination of a civil partnership. In instances where the price of a house is only slightly over a particular rate band, it might be possible to pay a lower tax or non at all depending on where it falls.
Working Out Stamp Duty
SDLT is applied in brackets, so the type ad cost of the property dictate what you have to pay. Certain resources such as a budget calculator make this task easy by helping with the financial work-about when purchasing a property. One distinction when paying stamp duty is whether it’s for a primary or secondary home. For a main property, the following rates apply;
£125,001 – £250,000 is 2%
£250,001 – £925,000 is 5%
£9250,001 – £1.5 million is 10%
12% for anything over £1.5 million
If you get residential real estate as a second home, it attracts an additional 3% to these rates. Note that the first tier changes to properties that cost £40,000 or more. If you have a house that you intend to sell but still acquire another one before you do, you are considered to own two properties and, therefore, the higher rates apply. If the purchase manages to go through within three years of getting the new one or gift it, then you are entitled to a refund of the excess Stamp Duty. The claim has to be within 12 months after filing SDLT returns or three months after selling your previous primary home, whichever comes later.
The SDLT rates for first-time buyers is calculated differently. A first-time buyer is one who has no history of purchasing residential real estate, leasehold or freehold, anywhere in the world. An exception is a commercial building with no living quarters. First-time buyers have to pay SDLT for properties valued at £300,000 or higher. Compared to regular Stamp Duty, you get savings of up to £5,000 on a main residence. If the house costs up to £500,000, the first £300,000 doesn’t carry SDLT, meaning you only pay for the remaining part, which is 5%. Say a house is £400,000, Stamp Duty only applies for £100,000 (£400,000 – 300,000).
Joint Ownership SDLT
As of October 2018, if a first-time buyer got a house as a joint ownership, then the tax relief for first-time buyers is in effect. The property should cost up to £500,000 and bought after November 2017. Note that both names on a jointly-owner home have to be first-time buyers to be eligible for this relief. Regardless of the names on the deed, the savings remain the same (up to £5,000).
When Should You Pay
Buyers had 30 days from the day of the transaction to pay Stamp Duty, but this changed since March 1 2019. Now, you have 14 days. The transaction date varies widely with the type of real estate. It can refer to the date you transfer most of the payment, when you have to pay the first rent or the day you take possession. HMRC accepts payments in the form of debit, Bacs cheques, in-branch payments, cards, online payments and CHAPS. Even though a property doesn’t attract any tax if it’s below £125,000, you have to file SDLT returns.
It always helps to get the expertise for a solicitor to guide you through this process, especially if it’s the first time. Get the right resources as well to aid you in filing the correct returns.