This month, the Government have introduced new laws in respect of Stamp Duty Land Tax (SDLT). The current structure is as follows:
|Property or lease premium or transfer value||SDLT rate|
|Up to £125,000||Zero|
|The next £125,000 (the portion from £125,001 to £250,000)||2%|
|The next £675,000 (the portion from £250,001 to £925,000)||5%|
|The next £575,000 (the portion from £925,001 to £1.5 million)||10%|
|The remaining amount (the portion above £1.5 million)||12%|
If you buy a house for £275,000, the SDLT you owe is calculated as follows:
- 0% on the first £125,000 = £0
- 2% on the next £125,000 = £2,500
- 5% on the final £25,000 = £1,250
- Total SDLT = £3,750
These rules remain the same in respect of your sole primary residence, and the new laws will only affect second homes or buy to let properties. Therefore if you owned only 1 property but did not live in it you would not pay the higher rate SDLT.
Here is a flow diagram to determine whether higher rate SDLT will be payable:
The new rates will be 3% above the existing rates as follows:
|Band||Existing residential SDLT rates||New additional property SDLT rates|
|£0* - £125k||0%||3%|
|£125k - £250k||2%||5%|
|£250k - £925k||5%||8%|
|£925k - £1.5m||10%||13%|
|£1.5m + 12%||12%||15%|
However, transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates.
If a person owns 2 properties but wishes to change their primary residence, they will have to apply for a SDLT rebate after the transaction, provided that they meet the criteria. They would have 3 years to sell their primary residence and recover the rebate.
If a married couple own 2 or more properties they will be treated as one unit consistent with other taxes and therefore will only be entitled to one relief between them, even when only one person is currently on the title to the main residence.
As the new structure has only come in to effect this month, it is difficult to determine whether this will have an effect on the property market. The hope is that more first time buyers will have the opportunity to purchase ahead of investors.
If you have a specific question in respect SDLT, please contact a member of our property team and they will happily assist.