Understanding Stamp Duty: Common questions answered

Understanding Stamp Duty Land Tax (SDLT) is a cause of frustration for many homebuyers.

SDLT is a complex issue.

We answer some of the most common questions about it.

What are the rates of SDLT?

It’s worth clarifying what the current rates of SDLT are before discussing some of the most common questions.

Individuals usually pay SDLT on increasing portions of the property price when you buy a residential property.

The amount you pay is determined by the following:

  • When you purchased the property
  • How much you paid for it

A useful SDLT calculator can be found on the Government website.

The amount you pay is dependant on either the property, lease premium, or transfer value.  

You are liable to pay Stamp Duty at the following rates if, once you have bought the property, it is the only residential property you own:

  • Up to £125,000 – Zero SDLT rate
  • The next £125,000 (the portion from £125,001 to £250,000) – 2 per cent SDLT rate
  • The next £675,000 (the portion from £250,001 to £925,000) – 5 per cent SDLT rate
  • The next £575,000 (the portion from £925,001 to £1.5 million) – 10 per cent SDLT rate
  • The remaining amount (the portion above £1.5 million) – 12 per cent SDLT rate

Do you have to pay an SDLT surcharge if you are buying a second residence?

The three per cent SDLT surcharges cause a great deal of confusion.

This confusion surrounds when someone is purchasing a main residence, but already owns another property. In some instances, the timing of the purchase is key to avoiding an expensive mistake.

Consider the higher rates as a flow chart:

  • If you hold an interest valued over £40,000 in any worldwide residential property?
    • If yes, the higher rates may apply
    • If nom then you are not in the scope of the higher rates
  • Have you disposed of the main residence within the last three years?
    • If yes, the higher rates will not apply as long as other conditions are met

Do I qualify as a first-time buyer and get the SDLT discount if I am purchasing my first home?

To qualify for the SDLT first-time buyer discount you cannot have held either a freehold or leasehold interest in a residential property anywhere in the world.

This is inclusive of properties you might have inherited or been gifted if you are a beneficiary of a trust.

At present, first time buyers paying £300,000 or less for a residential property pay no SDLT.

First time buyers who pay between £300,000 and £500,000 pay SDLT at 5 per cent on the amount of the purchase price in excess of £300,000.

If I gift a let property to someone do they have to pay SDLT?

SDLT is always calculated on chargeable consideration, or money/money’s worth.

Since a gift is freely given, no money changes hands.

It is important to note that “money’s worth” includes debt.

Therefore, if you gift property with a mortgage, SDLT will be chargeable on the value of the mortgage being transferred.

If I transfer my property portfolio for zero consideration into my company does the company pay SDLT?

There is a common misunderstanding surrounding this question.

Any transfer from individuals to a connected company occurs at market value.

If you need advice on Stamp Duty Land Tax, contact us today.

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