In England and Northern Ireland “Stamp Duty Land Tax” (SDLT) must be paid on the purchase of any property over a certain value, regardless of whether it is freehold or leasehold, bought outright or mortgaged, or part of a shared ownership scheme. The exact value depends upon whether it is going to be your only home, your second home, or your first home. But how does it work? We will discuss each briefly.
Only or second property
If you are buying a residential property that will be the only home you own, and it‘s not your first home, then the standard amount of SDLT must be paid. This is calculated in bands — much like income tax.
For properties between £0 and £125k, you don’t have to pay any tax, whilst on the next £125k (so, £125k – £250k) you are required to pay 2% of the value of the property. This percentage is on the band only; therefore, if you were to buy a house worth £250k then you would pay 0% on the first £125k (£0) and 2% on the next £125k (£2,500), for a total of £2,500 in SDLT. Following this, there are another three bands, and we have tabulated them below:
VALUE | TAX
£0 – £125k | 0%
£125k – £250k | 2%
£250k – £925k | 5%
£925k – £1.5m | 10%
£1.5m + | 12%
If it will be your second property, then an additional 3% is placed on all the above bands (so, £125k – £250k would be 5%), and an extra 3% SDLT band is added between £40k and £125k.
If you currently live in a house you own, and you buy a second that is intended to be your only home, then you will still have to pay the additional 3% tax; however, it can be claimed back if you sell your original home within three years, and claim within three months of the sale.
If you are a first-time buyer (or both you and your partner are first-time buyers) then you become eligible for stamp duty relief. This is a simple process whereby you are not required to pay any tax on the first £300k of a property’s value, with a 5% tax levied on any amount between £300k and £500k. However, standard SDLT applies for anything over £500k, and you will be ineligible for any reductions in payment for the amount under that.
Application and penalties
For most buyers, a solicitor takes care of all the paperwork. However, to avoid confusion it is worth noting that a SDLT form must be filed within 30 days of the purchase of a property — regardless of whether you have to pay any tax at all. Failure to return the correct documents results in financial penalties, so you can save money by being prudent and aware of your legal responsibilities.
In addition to this there are different rules and regulations for business and land purchases, so it is worth doing additional research on money blogs if you fall into one of these categories.
Written by Marley Sexton
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