There are several types of UK property tax that should be calculated when considering a property investment, especially in high-value properties where the tax cost will be higher.
Stamp Duty Land Tax (SDLT) is the most immediate of these, as it is paid by the buyer when purchasing a property (including first and second homes, and buy-to-let properties).
There are also UK property taxes when selling or inheriting property, including Capital Gains Tax and Inheritance Tax (IHT), and while these are paid at a later date, they should be considered from the outset.
Stamp Duty is often the largest additional expense you will incur when buying a property, so it’s vital that you understand the rules and rates. We always advise our clients to speak with an independent tax advisor when considering a purchase, for which we can put you in touch with London’s top law and accountancy firms.
You can download our full guide to associated costs when buying a property in England here, or read about SDLT in more detail below.
Stamp Duty Land Tax (often written as SDLT) is a tax charged according to the purchase price of the property. There are slightly different SDLT rates for second homes, buy-to-let properties, non-UK residents and some other specific situations.
The modern system of Stamp Duty on property transactions was introduced in December 2003 and applies in England and Northern Ireland, with slightly different Land Transaction Taxes charged in Scotland and Wales.
Historically, ‘stamp duty’ was a tax charged on property transactions and official documents that needed to be rubber-stamped by the government. It no longer refers to a physical stamp, but the name has remained in use.
In England and Northern Ireland as of September 2022, the SDLT threshold starts at purchase prices over £250,000. As shown below, there are higher bands where a higher rate is payable, as well as surcharges for some kinds of buyers and transactions.
The amount of Stamp Duty tax UK buyers must pay depends on the value of the property. It is charged in bands, and if your purchase price goes over the threshold into a higher SDLT band, you only pay the higher rate on the portion of the purchase price above that threshold.
Stamp Duty rates change from time to time, most recently as part of the September 2022 ‘mini-budget’. As of September 2022, the UK SDLT rates are:
As you can see, the Stamp Duty rate rises significantly on high-value properties, so it’s important to take the bands into account when choosing a budget for the purchase.
There are few circumstances in which you can claim back Stamp Duty. One example is if you buy a second property and complete on the sale of your primary residence within three years of the second property’s completion date.
You can then reclaim the SDLT second home surcharge that was paid on the earlier purchase (see below).
There are a number of SDLT reliefs and exemptions. One of the main Stamp Duty exemptions is for first-time buyers, but this only applies on purchases up to £625,000.
First-time residential property purchases are zero-rated up to £425,000, with a discounted 5% rate on the portion from £425,001 to £6250,000. If the purchase price is over £625,000 you must pay the full amount of Stamp Duty, making this a key negotiation threshold for FTBs.
For the purposes of Stamp Duty, a non-UK resident is defined as anyone who was not present in the UK for six months (183 days) out of the preceding 12-month period.
There is a 2% surcharge on Stamp Duty for non-UK residents, in addition to any other surcharges such as the surcharge on buy-to-let properties and second homes (see below).
There is a 3% surcharge on Stamp Duty for second homes. This includes if you are selling your primary residence, but the sale does not complete until after your purchase of your new property completes. This is the case even if your old property is under contract.
As mentioned above, you can claim back the 3% if your sale completes within the following 36 months.
SDLT rates are different for non-residential and mixed property, starting from 2% on transactions of £150,001 or more. This includes commercial space such as shops or offices, and also applies when 6 or more residential properties are bought in one transaction.
Changes to the Stamp Duty tariff can have significant effects on valuations and activity in the prime property market, as even a small increase in the higher bands can add thousands to a high-value transaction.
In the past, the UK government has increased the higher band rates to compensate for Stamp Duty ‘holidays’ for low-value properties and first-time buyers – so prime buyers can end up footing the bill for those at the bottom of the property ladder.
For insights into the current state of the London property market, read our latest Market Update, which provides regular information about PCL market conditions, changes to property taxes and their impact on high-value transactions.
The current Stamp Duty rate rises to 10% at £925,000 and 12% over £1.5 million – and that’s on UK-resident primary property purchases with none of the above surcharges added.
If you are planning a high-value property purchase, especially as a second home, buy-to-let property and/or as a non-UK resident buyer, it’s important to get professional advice on your exposure to SDLT.
At Black Brick, we can put you in contact with leading independent tax advisors who can advise on the implications of Stamp Duty on your purchase.
Black Brick is London’s leading buying agent, working on your behalf to ensure a smooth and successful transaction from start to finish. We can refer you to experts in the world of finance and tax, and even negotiate the best price for your purchase to ensure it is a good investment after Stamp Duty has been applied.
To find out more, contact Black Brick today.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.
