Relevant to tax year 2020/21
Do you pay Stamp Duty Land Tax rates on land that you buy?
You may be interested in our main article “buy to let tax for UK landlords”. This article discusses all the different types of tax that you need to be aware of as a UK landlord.
We have written an article that shows what Stamp Duty Land Tax is and how it is calculated. You may wish to calculate and save the SDLT liability.
Stamp Duty Land Tax is charged as a percentage of the amount given for the property.
You pay SDLT when you buy a property or land. You may also pay SDLT when a property is transferred to you. This is whether or not the transaction involves payment of money and/or non-monetary consideration. Monetary consideration includes goods, services or the assumption of financial liabilities. The total amount on which SDLT is payable is known as the ‘chargeable consideration’.
Stamp Duty Land Tax is usually paid to HMRC within 30 days of the property purchase. Conveyance solicitors will usually request the payment of Stamp Duty Land Tax as part of the completion process.
Stamp Duty Land Tax rates (banded)
|Up to £125,000||Zero|
|From £125,001 to £250,000||2%|
|From £250,001 to £925,000||5%|
|From £925,001 to £1.5m||10%|
Return On Investment (ROI) is clearly reduced when you pay Stamp Duty Land Tax. It is very important that you look at all ways to reduce ther payment of Stamp Duty Land Tax to HMRC.
£0 – 0% X £125,000
£2,500 – 2% X £125,000 (£250,000 less the previous SDLT band of £125,000)
£2,500 – 5% X £50,000 (£300,000 less the previous SDLT band of £250,000)
£5,000 is the total SDLT charge that will be applied to a property value of £10,000
Does that need to be the case whereby you pay SDLT?
SDLT higher rate – 3% surcharge from November 201
There are many property investors who are buying properties below the lower SDLT threshold of £125,000 so that they can avoid paying any SDLT on their purchases.
However, times are changing and while the scaled SDLT charges applies for anyone buying their first property, anyone buying a second residential property will soon have to pay an additional 3% on any residential property with a value of £40,000 or more. Please note that the 3% extra SDLT is in addition to the SDLT rates set in my previous article and is based on the full amount of the property.
For example, if you already have one house, which you do not intend to sell as part of the transaction, you make will incur the additional 3% SDLT. This will inevitably increase the cost of buying a property and decrease the return on investment (ROI).
Download your buy to let tax guide here, written by our property accountants
Who is affected by the 3% SDLT surcharge?
The government announced the new charges from November 2015 (from their Autumn Statement). Let us look at the scenarios that will result in the 3% SDLT surcharge when buying:
- a second home as a holiday home
- property investments when you already own a house in your own name or in a limited company
- buying a home for the first time if you a property investment
If you sell your own home and buy another home, you will not have to pay the additional 3% on that property. However, if you will pay the 3% SDLT surcharge if you do not sell your home as part of the transaction. You can have the 3% SDLT surcharge refunded back to you from HMRC if you sell your first home within three years of buying the new home.
You should have noted that the last bullet point shows that the 3% surcharge when you buy a new home even if you are currently in rented accommodation. This seems wrong to me but we have to work within the law. However, the three-year clock does not start to tick until 29th October 2018. You would not need to pay the 3% SDLT surcharge if you previously owned a home (which you lived in) and sold it before 28th October 2018.
The higher rates will affect properties that exchange after 25th November 2015 (when the change was announced), where completion takes place on or after 1 April 2016.
How is the 3% Stamp Duty Land tax rates calculated?
Sarah wishes to purchase a buy to let property in her own name for £300,000. From the above, we can see that the SDLT scales charge was £5,000. This is a second property for Sarah and will be required to pay the 3% SDLT higher rate as follows:
£9,000 – 3% SDLT higher rate X £300,000 purchase price of the buy to let
£5,000 – Scaled Stamp Duty Land Tax charge from above
£14,000 is the total SDLT charge applied to a £300,000 residential buy to let property.
2% SDLT surcharge for Foreign investors buy UK property
This 2% SDLT foreign surcharge measure will apply to land transactions with an effective date of 1 April 2021.
Where contracts are exchanged prior to 11 March 2020 but complete or are substantially performed on or after 1 April 2021, transitional rules may apply. Transitional rules may also apply where a contract is substantially performed on or before 31st March 2021 but does not complete until 1st April 2021 or later.
Stamp Duty Land Tax rates for commercial properties
You may be looking to buy additional properties as an investment. As discussed in my earlier article, you will need to pay SDLT and this will vary depending on the value of the residential property. We have also written a more detailed article all about investing in commercial properties. Be sure to take a read.
However, if you are buying commercial properties then you will pay SDLT at different rates, as follows:
|Up to £150,000||Zero|
|Over £150,000 to £250,000||1%|
|Over £250,000 to £500,000||3%|
You are therefore going to be paying more SDLT on commercial buildings than you would residential properties.
Whenever you buy residential properties you will pay the % figure provided in my article, with the amounts based on a sliding scale.
You might think that the same applies to commercial properties. The harsh reality is that this is not the case. On commercial properties, you will pay the % on the full amount once you go over certain values as shown above.
The rules for commercial properties are also applied if you are buying mixed-use properties, for example, flats above offices or shops.
Can you see that you will pay more SDLT on commercial properties than you would residential?
Do you understand that the SDLT calculations for commercial properties are very different to residential properties?
You may want to read our other article where we explore how Stamp Duty Land Tax may be reduced as UK landlords.