What is Stamp Duty Land Tax (SDLT)?

It’s a payment to HM Revenue & Customs when you buy a property or land in England and Northern Ireland. The amount of Stamp Duty Land Tax (or whether you need to pay at all) depends on the purchase price and your circumstances as a buyer. 

If you’re looking for a property around our neck of the woods (East London), then Stamp Duty Land Tax is something you should probably know about. Depending on the value of the property, this can stack up to a significant figure – so make sure you include this cost in your overall budget.

However, not all properties and buyers are created equal in the eyes of HMRC. Although most people will have to stump up at least some tax, the amount depends on a number of factors. 

Stamp Duty Land Tax explained

Before we reach for the calculator, it’s worth mentioning that not everyone will need to pay Stamp Duty Land Tax. For example, if you’re a first-time buyer purchasing a home under £300,000 then you currently don’t need to pay a penny (a massive result for people getting on the ladder in London). We’ll cover a few more exemptions later on. 

As a rule of thumb, stamp duty applies whenever you:

And it doesn’t matter whether you’re taking out a mortgage or paying in cash, or even whether you’re buying through a shared ownership scheme – Stamp Duty Land Tax could still apply. 

Stamp Duty tax rates

At the moment, the threshold is £125,000 for residential properties and £150,000 for non-residential properties such as shops and offices. The amount of tax is based on a percentage of the property valuation. Here’s a breakdown of the stamp duty tax bands:

Up to £125,000 = 0%

The next £125,000 (properties from £125,001 to £250,000) = 2%

The next £675,000 (properties from 250,001 to £925,000) = 5%

The next £575,000 (properties from £925,001 to £1.5m) = 10%

The remaining amount north of £1.5m = 12%

For example, let’s say you find the house of your dreams and it costs £500,000. And let’s assume that it’s the only property that you own and that you’re not a first-time buyer. You would pay nothing on the first £125,000, you would pay 2% tax on the next £125,000 (which is £2,500) and 5% on the rest (another £12,500). So your Stamp Duty Land Tax would work out at £12,500. 

Make sense? If in doubt, the easiest way to find out how much property tax you need to pay is to run the numbers through the HMRC Stamp Duty Land Tax calculator

Stamp duty on buy-to-let and second homes

As estate agents in East London, one of the questions we’re asked is about how much Stamp Duty Land Tax landlords need to pay on second homes. Basically, if you buy an additional property other than your primary residence, then you’ll need to pay a stamp duty surcharge on top of the normal SDLT rates. 

The threshold for second homes is £40,000. After that, here’s a breakdown of the additional property tax:

Up to £125,000 = 3%

£125,001 to £250,000 = 5%

£250,001 to £925,000 = 8%

£925,001 to £1.5m) = 13%

Over £1.5m = 15%

This applies whether it’s a buy-to-let or a second home. And you can’t get around it even if your main home is abroad or you’re buying property via a limited company.  

But there is one small loophole, and that’s when it comes to paying stamp duty on granny flats and annexes (separate self-contained dwellings). Although technically a ‘second home’, there are no surcharges applied regardless of how it’s used i.e. you can rent it out or do whatever you want with it. 

Stamp duty on shared ownership property

Some people mistakenly believe that there’s no stamp duty on shared ownership properties, but unfortunately that’s not the case. Unless you’re a first-time buyer, Stamp Duty Land Tax is applied to shared ownership properties purchased through a recognised shared ownership scheme such as those run by housing associations and local housing authorities. 

Much like a conventional purchase, the amount is a percentage of the total value of the property. This means that even if you’re only buying 50% of the property, Stamp Duty Land Tax is applied to the total value. However, you can buy a bigger share later on (up to 80%) without clocking additional charges. 

Reliefs and exemptions

In some cases, buyers don’t need to pay any Stamp Duty Land Tax. The most common reliefs and exemptions cover situations where the property is changing hands without payment such as:

Final thoughts

Stamp Duty Land Tax is usually handled by a solicitor or agent, so buyers don’t need to worry much beyond knowing what (if anything) is owed. If you’re unsure whether you qualify, or if you’re a landlord looking for advice on the property taxes involved with buy-to-let, please email info@keatons.com and we’ll talk you through the process. 

See our full list of property advice articles in our Knowledge Centre

About Keatons

Keatons has been based in East London for over 20 years and has since expanded to the north and south of the city. We have an outstanding Trustpilot rating from customers and we are known for helping sellers and landlords achieve the best possible market price for their property. To find out more, visit our website.

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