All You Need to Know About Stamp Duty Tax

Written by: Liez Comendador
Written by: Liez Comendador
All You Need to Know About Stamp Duty Tax

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Stamp duty land tax SDLT is the tax imposed on buyers for the properties or pieces of land they bought in England or Northern Ireland. Scotland and Wales have their tax equivalents but with different rates—Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT), respectively.

We will refer to them as stamp duty tax in this article for simplicity. The rates depend on various factors. This article comprehensively discusses all the latest announcements on SDLT, effective until 31 March 2025, from rates, calculations, and examples to further updates.

Who Pays Stamp Duty Tax?

SDLT applies to properties regardless of if they are freehold (bought outright) or leasehold (bought via a mortgage). The following property buyers, whether they purchase in England and Northern Ireland, Scotland, or Wales, are subject to stamp duty tax, except for when they qualify for the exemptions or fall within the tax-free threshold: 

  • Residential property buyers   
  • Non-residential property buyers   
  • First-time buyers   
  • Second home buyers   
  • Investors   
  • Shared ownership buyers 

Usually, it is the conveyancer, solicitor, or real estate agent who files the SDLT return, collects the tax amount owed by and from the buyer, and pays in a lump sum to the HMRC within 14 days (in England and Northern Ireland) or 30 days (in Scotland and Wales) upon the completion of the purchase, which they should strictly follow to avoid penalties and interests.  

Completion of the property sale refers to the buyers’ date of entry when they have signed and dated all the contracts and got the keys
This comes with an additional admission fee as they handle all the paperwork, whether the buyer is eligible for tax relief or not. However, if they do not do so or the ones who buy a property decide to handle the paperwork themselves, the buyers are solely responsible for the process, wherein most seek help from tax experts.

Stamp Duty Land Tax (SDLT) vs Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT)

The stamp duty land tax SDLT rates property buyers will pay depend on several factors, such as the following: 

  • Purchase price of their property; 
  • Which tax band the property falls in; 
  • Where the property is located; 
  • If they are first-time or second homebuyers (residential); 
  • If they bought a property for investment (non-residential) purposes (e.g., buy to let); 
  • If they are a UK resident or not; 
  • If they qualify for reliefs and exemptions. 
England and Northern Ireland pay stamp duty land tax, Scotland the Land and Buildings Transaction Tax, and Wales the Land Transaction Tax
Each of the stamp duty taxes has different thresholds (limit where zero tax applies) and imposes different rates on main residences and additional property purchases (e.g., second homes or holiday homes). Take note that non-residential properties are charged differently.

Stamp Duty Land Tax (SDLT)

Take a look at England and Northern Ireland’s rates on residential properties below, which have been in place since 23 September 2022:
Stamp Duty Land Tax Band (Purchase Price) Main Residence (Standard) Rate Additional Property Rate
Less than £125,000
0%
3%
£125,001 to £250,000 (up to £425,000 for first-time home buyers)
0%
3%
£250,001 to £925,000
5%
8%
£925,001 to £1.5 million
10%
13%
£1.5 million and above
12%
15%

Those who purchase another property will pay the additional property rate, charged on top of the standard rate, which is an additional 3 per cent for each of the stamp duty tax bands. That means 3 per cent for the amount less than £250,000, 8 per cent for the amount between £250,001 and £925,000, and so on.

The threshold for first-bought residential property in England or Northern Ireland is £425,000. The relief will only be available for up to £625,000, charged at 5 per cent beyond the threshold.

Land and Buildings Transaction Tax (LBTT) 

Here are the rates on residential properties in Scotland since 1 April 2021:
Land and Buildings Tax Band (Purchase Price) Main Residence (Standard) Rate Additional Property Rate
Less than £145,000 (up to £175,000 for first-time home buyers)
0%
4%
£145,001 to £250,000
2%
6%
£250,001 to £325,000
5%
9%
£325,001 to £750,000
10%
14%
£750,001 and above
12%
16%
Scotland charges 4 per cent for additional properties, also called the Additional Dwelling Supplement (ADS), which works the same way as above. First-time home buyers’ threshold in the country is £175,000 without upper limits.

Land Transaction Tax (LTT)

Wales charges stamp duty tax on residential properties as follows, which have been imposed since 10 October 2022:
Land Transaction Tax Band (Purchase Price) Main Residence (Standard) Rate Additional Property Rate
Less than £225,000 (both for first-time homebuyers and main residences)
0%
4% — up to £180,000 7.5% — £180,001 to £250,000
£225,001 to £400,000
6%
9%
£400,001 to £750,000
7.5%
11.5%
£750,001 to £1,500,000
10%
14%
£1,500,001 and above
12%
16%
The additional property rate in Wales is much higher, with differing 3 to 4 per cent charges. The threshold for first-time homebuyers is similar to those of main residential properties.

How is Stamp Duty Tax Calculated?

The rate of stamp duty residential property buyers pay will be based on the details above. Different stamp duty rates apply to non-residential properties in England and Northern Ireland (SDLT) and Scotland (LBTT), in which the threshold is set at £150,000. In Wales (LTT), the same threshold of £225,000 applies.

They can work out how much tax they pay by taking into account those rates, their circumstances, and whether or not they are eligible for relief. For example, John buys a house worth £525,000 for the first time either in England or Northern Ireland. His stamp duty land tax rate will be calculated as follows:

Purchase price = £525,000 

Threshold as a first-time homebuyer = £425,000 

Percentage from £425,000 to £625,000 (first-time homebuyers’ relief) = 5% 

John will not pay for the first £425,000, so: 

£525,000 – £425,000 = £100,000 

5% of £100,000 = £5,000  

SDLT rate total = £5,000 

John’s total stamp duty tax liability to pay upon completion of purchase will be £5,000.

The same calculation goes for other countries’ stamp duties. They can also use a stamp duty calculator on various platforms to come up with their exact rates and work with tax experts alongside so they do not miss out on any reliefs and exemptions they may qualify for.

Exemptions and Relief

Property buyers should take note of the exemptions and reliefs so they do not miss out on any chance to save on their purchase. Here are some that may apply to them: 

  • Zero-Rate Stamp Duty Tax 

Self-building owners will not need to pay the tax. The same goes for them if they have zero-carbon homes that cost less than £500,000. 

  • First-Time Buyer Relief 

First-time homebuyers refer to those who have never owned, or part-owned, a property within the UK or abroad, including any inheritance (even if they have not lived in it or sold it immediately). Homebuyers will be eligible if they and anyone else they buy with are legitimate first-time buyers and intend to live in it as their main residence.  

If they qualify for first time buyer, In England and Northern Ireland, they will pay zero tax for their first £425,000, given their purchase is within £625,000, in which they pay a 5% discounted rate within those value. No relief is available for purchases beyond £625,000. In Scotland, the relief is set at £175,000 without upper limits. In Wales, it is the same for whether they are buying a main residence or non-residential property, which is £225,000. 

  • Shared Ownership Relief  

If they buy through a shared ownership scheme, they will only be paying tax on the part of the property they will own, in which they can pay one-off (also called market value election) or in stages. With a one-off payment, they can pay their SDLT based on the full price of their home. 

This means they will be free of any payment in the future once they decide to increase their share or the property’s market value goes up. Whilst if they choose to pay in stages as they increase their shares, they may incur higher SDLT rates when the property’s value rises as they buy more shares. 

  • Multiple Dwelling Relief  

They can also avail themselves of reliefs when they buy more than one dwelling, given that their transaction or other linked transaction has freehold or leasehold interests in more than one dwelling. 

  • Charities Relief  

When charities purchase properties for charitable purposes, they do not have to make an SDLT return and pay the tax. 

  • Other Exemptions and Reliefs  

Whilst second-time or additional property buyers are subject to additional stamp duty rates, they can apply for a refund of the higher rates they paid when they sold their main home within three years of purchasing a new one, which they intend to use as their main dwelling.  

Recent Changes and Updates

Stamp duty taxes have since been mended and are still subject to changes depending on the market needs. As of writing, the above-mentioned rates apply until 2025, including the new surcharge for non-UK residents, wherein they are charged a 2 per cent additional rate on top of all their stamp duty rates for purchases above £40,000.

Going back, during the COVID-19 lockdown, the stamp duty holiday was introduced to boost confidence in the UK market, in which buyers will pay zero taxes on their property purchases of less than £500,000. This was extended for several months until it came to an end on 30 September 2021. On 31 March 2025, new stamp duty rates will apply, which property buyers should be wary of.

Seek the Help of Tax Experts

Knowing the available thresholds, exemptions, and reliefs and the payment timeframe (to avoid penalties) can greatly curb property buyers’ stamp duty tax liabilities as they eat up a considerably large amount overall. Claiming the wrong amount of refund particularly puts buyers at risk of huge CIS penalties. 
Legend Financial is here to help any buyers’ stamp duty liability, from working out the rates, applying the reliefs and exemptions, making stamp duty returns, and claiming the right refund amounts, to assisting them to comply with the payment timeframe. Reach us today! 

Reference:

Land and Buildings Transaction Tax – everything you need to know. (n.d.). Retrieved from Money Helper:
https://www.moneyhelper.org.uk/en/homes/buying-a-home/land-and-buildings-transaction-tax-everything-you-need-to-know 

Stamp Duty – everything you need to know. (n.d.). Retrieved from Money Helper:
https://www.moneyhelper.org.uk/en/homes/buying-a-home/everything-you-need-to-know-about-stamp-duty 

Stamp Duty calculator. (n.d.). Retrieved from Money Helper:
https://www.moneyhelper.org.uk/en/homes/buying-a-home/stamp-duty-calculator 

Stamp Duty Land Tax. (n.d.). Retrieved from Gov.UK:
https://www.gov.uk/stamp-duty-land-tax 

Stamp Duty Tax Calculator – 2022 Updated 23/09. (n.d.). Retrieved from Knight Frank:
https://www.knightfrank.co.uk/stamp-duty-calculator 

Calculate stamp duty (SDLT) in England and Northern Ireland with our instant stamp duty calculator. (n.d.). Retrieved from Stamp Duty Calculator:
https://www.stampdutycalculator.org.uk/ 

Stamp Duty Calculator. (n.d.). Retrieved from Money Saving Expert:
https://www.moneysavingexpert.com/mortgages/stamp-duty/ 

Stamp Duty: How Does it Work and What Will You Pay? (31 January 2023). Retrieved from Nerd Wallet:
https://www.nerdwallet.com/uk/mortgages/what-is-stamp-duty/ 

Stamp Duty Calculator. (n.d.). Retrieved from Right Move:
https://www.rightmove.co.uk/stamp-duty-calculator/ 

Stamp Duty Calculator. (n.d.). Retrieved from Home Owners Alliance:
https://hoa.org.uk/stamp-duty-calculator/ 

What is Stamp Duty? (n.d.). Retrieved from My Home Move:
https://myhomemoveconveyancing.co.uk/help-and-advice/what-is-stamp-duty-land-tax/ 

Stamp duty explained. (n.d.). Retrieved from Wesleyan:
https://www.wesleyan.co.uk/mortgage/stamp-duty-guide 

Author

  • Junaid Usman

    Apart from being a partner at Legend Financial, Junaid is an expert on Business Tax including business management advisory services which has proven in the growth of company. He is a promising advisor with an ideology; "Any business success depends on the level of objectivity it maintains."

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Junaid Usman
Junaid Usman
Apart from being a partner at Legend Financial, Junaid is an expert on Business Tax including business management advisory services which has proven in the growth of company. He is a promising advisor with an ideology; "Any business success depends on the level of objectivity it maintains."

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