Justin Martin Partner

How Stamp Duty Land Tax (SDLT) is calculated

| Published on August 11, 2016

How Stamp Duty Land Tax is calculated

If you are buying a home, stamp duty land tax (SDLT) is an additional part of your purchase cost for which you will need to budget.

Justin Martin, Land Law Partner at Humphries Kirk in Crewkerne, explains the rules for calculating the amount of SDLT you will need to pay, including some recent changes.

Stamp duty land tax is a form of transfer tax, which arises on most land transactions in England and Wales.

The tax is payable by the buyer. Generally, unless the purchase price of the property is below the SDLT threshold, you will have to pay the tax. This threshold is currently £125,000.

Calculating the amount of SDLT payable

It is important to include stamp duty land tax in your budget when working out how much you can afford to spend on a property. The cost can be significant, and you need to know you can meet all the purchase costs before committing yourself.

Usually, the amount of tax payable will depend upon the purchase price of the property. Effectively, the purchase price is divided into bands. The rate of SDLT is then calculated as a percentage and increases as you move across bands.

Portion of the purchase price | SDLT rate

First £125,000  |  0

£125,001–£250,000  |  2%

£250,001–£925,000  |  5%

£925,000–£1.5 million  |  10%

The portion above £1.5 million  |  12%

For example, if a property costs £450,000 the amount of stamp duty land tax is worked out as follows:

Portion of the purchase price | SDLT rate | Amount£

First £125,000  |  0%  |  £0

£125,001–£250,000  |  2%  |  £2,500

£250,001–£450,000  |  5%  |  £10,000

Total SDLT payable: £12,500

Your conveyancer can help you work out your potential SDLT liability. You can also use HM Revenue & Custom’s online SDLT calculator.

How it works in practice

Legally, as buyer, you must complete a land transaction return. This form is similar to a self-assessment tax form. You must send the form to HM Revenue & Customs, and pay any stamp duty land tax due, within 30 days of completing your purchase. Failure to do so may result in a fine and you may also be charged interest on the outstanding amount. It is important to ensure that the form is completed correctly because if it is not, HM Revenue & Customs may reject it and cause a delay in your payment of SDLT.

It may be possible to submit the form and pay the tax electronically; your conveyancer will advise you on the best option and ensure that the process runs swiftly and smoothly.

If HM Revenue & Customs is satisfied with the return, they will issue an SDLT certificate. This certificate is important as the Land Registry will need to see it before they can register your purchase.

Your conveyancer should send the SDLT certificate to the Land Registry, and ensure that you are registered as the new owner within the necessary timeframe.

Additional residential properties

In April 2016 the government introduced some important reforms to stamp duty land tax. As a result, if you already own one residential property and decide to buy an additional residential property, you will be charged a higher rate of tax at 3 per cent above the standard SDLT rate.

The changes are aimed at those buying a second home or a buy-to- let property. However, you may also be affected if you, or somebody you are buying with jointly, already have an interest in another property, perhaps through a previous relationship or inheritance.

The additional charge can even arise where you intend to sell your main residence and replace it with a new home, for example, if your sale is delayed but you complete your purchase using bridging finance. In that case, you may have to pay SDLT at the higher rate. However, you should be able to claim a refund of the additional tax if you sell your original home within the following three years.

Stamp duty land tax can be complex, so discuss your particular circumstances with your lawyer early on. They can advise whether these new provisions apply to you. If they do, it is important to deal with any claim for a refund quickly and correctly, or you could lose out.

For more information about stamp duty land tax when buying a house, contact Justin Martin, Land Law Partner in our residential property team.

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