How much is stamp duty? The complete guide

Posted 27th June 2023 by ctatax-admin

Cornerstone Tax is the UK’s leading property tax advisers, specialising in Stamp Duty Land Tax. We’ve reclaimed over £15 million in overpaid SDLT in the last 12 months. Contact us for stamp duty advice, or to see if you are eligible to claim a refund from HMRC on overpaid Stamp Duty

How much is Stamp Duty? The Complete Guide

If you’re buying your first home, looking to get a second property or holiday home or taking your first steps on the investment ladder, one of the questions you’ll have asked yourself is exactly how much stamp duty you’re likely to have to pay. This quick guide will give you an idea of the costs involved, as well as pointing out the pitfalls missed by many which result in the wrong amount of Stamp Duty being calculated on a purchase, leading to complications down the road.

What is Stamp Duty?

Stamp Duty, or to give it its full title, Stamp Duty Land Tax (SDLT), is a tax applied to the purchase of property in England and Northern Ireland. Wales has an equivalent in Land Transaction Tax (LTT) and Scotland similarly has Land and Buildings Transaction Tax (LBTT). All are calculated based on the value of the property acquired as well as its specific type and a number of other factors may also be relevant in reaching the final liability. For the purposes of this article, we will discuss SDLT, but the same broad principles may apply to all forms of this tax.

Who Pays Stamp Duty?

Stamp Duty is paid by the buyer of the property. This may either be an individual or a company, but it is important to note that Stamp Duty Land Tax is a self-assessed tax and responsibility for the correct calculation and payment ultimately rests with the buyer – if it’s wrong, it will be the buyer who is pursued by HMRC for underpayments and any interest accrued. (if it’s overpaid of course, responsibility will rest with the buyer to correct this).

When is Stamp Duty Paid?

SDLT is payable on completion of the purchase, and will often be collected by your solicitor as part of the funds required in the days leading up to that date. It is vital that you are aware of the amount required and have it readily available in order to avoid delays to the completion of your transaction.

How is Stamp Duty Calculated

Stamp Duty is calculated now using what’s known as a ‘slice’ system, meaning that certain thresholds of value attract certain percentages of charge per ‘slice’. For example, the ‘zero band’ (value at which SDLT is not applicable) on residential purchases is, as of Sept 2022, set at £250,000, and the next ‘slice’ of value (between £250,001 and £950,000) will be charged at 5%, meaning that on a property worth £300,000, nothing would be charged on the first £250,000 and then 5% of the remaining £50,000 (or £2,5000 would be payable.

How much can I expect to pay?

The short answer is, there is no short answer. Contrary to the appearances of SDLT on HMRC’s website, there is no simple explanation of how much SDLT may be due, precisely because there are so many factors which may impact the final number.

The type of property, buyer, condition of the property, whether it’s a residential, holiday or investment purchase and many other elements can all have a significant impact on the liability, and that’s before considering elements which may change as time goes on, necessitating a later reassessment. Here therefore, we will try to cover the most common scenarios and give a rough idea of the liabilities each may entail.

Residential Purchase – First Time Buyer

A standard purchase of a single home by a person or persons who have never owned property before – this distinction is important because it differs from that used by some mortgage lenders. If any party to the transaction has ever owned a part or whole interest in any property anywhere in the world (not just the UK) then they will not qualify.

First Time Buyers benefit from a slightly different set of rules when it comes to Stamp Duty, enjoying reliefs which apply on properties bought up to a value of £625,000. This works out as a zero band on value up to £425,000, and a further 5% flat rate applied on the amount above £425,000 up to £625,000. For FTBs purchasing property above £625,000, no relief applies at all, and the standard rates would be payable.

Read:

Standard Residential Purchase

If you are a non-first time buyer just buying a freehold or standard residential leasehold home, then the ‘standard’ set of rates should apply. These set the zero band at up to £250,000 and then apply slices at the next £675,000 to £925,000 (5%) the following £575,000 to £1.5million (10%) and then a final band above £1.5million value at 12%.

It should be emphasised that these rates are specific to a very straightforward residential purchase of a single home by an individual or couple, and that the home is assumed to be habitable, purely residential and consisting of a single dwelling. Any variation from any of these factors may cause differences to the amounts due.

Non-Residential Purchase

Often also referred to as a commercial purchase, the acquisition of non-residential property is subject to a different, much simpler scale of Stamp Duty charges. Such properties are assessed at a zero band of up to £150,000, then have a 2% band on the next £100,000 up to £250,000 and a final 5% band on any value over £250,001.
The complexity here revolves around how a ‘non-residential’ property is defined. Some are obvious enough – offices, shops, agricultural land and so on.

But then there is property not suitable to be lived in, the purchase of six or more residential properties in one transaction and land or property which is not part of a dwelling’s garden or grounds. It’s apparent that for higher value property, a classification of ‘non-residential’ can result in significantly lower Stamp Duty liability, but it’s equally apparent that such a definition is not always immediately apparent.

Mixed-Use Property

Mixed-use properties are basically subject to the same liability as non-residential property, and again whereas the definition of a mixed-use property may seem obvious, there are nuances to be aware of when looking at a property. The standard example would be a shop with a residential flat above it, of the sort commonly seen in most city centre areas.

But many different types of property may qualify for this definition, including properties with land outside a garden or grounds which may have commercial or agricultural use, a larger property with offices or workshops in the grounds and so on. There is no real ‘fixed’ or easy definition of what constitutes a mixed-use property, so it is always worth having an expert assessment if there is any doubt in your mind.

Read: A guide to Mixed-use developments and when you can save thousands on Stamp Duty

Multiple Dwellings Relief

Multiple Dwellings is another definition which seems simple on the surface, but actually encompasses a potentially tricky area of the legislation when it comes to calculating Stamp Duty.

The most immediately obvious example would be the purchase of a block of flats, or perhaps several houses on the same street. However, the definition may also include, for example, a larger property which has separate dwellings within it, for example a stately home with a separate ‘servants cottage’.

More relevantly to many in the current climate, it may also include a property with a ‘granny annexe’ used to house either elderly relatives unable to live alone or to accommodate older children unable to afford to move out on their own. The criteria are exacting, so it’s not simply a case of any annexe qualifying, there must be certain factors which enable it to qualify as an entirely separate dwelling and these should be checked by an expert to determine whether the relief is due.

If it is, then MDR basically averages out the ‘value’ to be applied to each separate dwelling forming part of the transaction and then SDLT is calculated against that average value for each. This can obviously lead to significant savings in instances where the relative values of each dwelling involved are substantially different.
Second/Investment residences

If you’re a homeowner looking to buy another residence – be it a holiday home, a second home or the start or continuation of a Buy To Let portfolio, you should be aware of the Higher Rate on Additional Dwellings, also known as the ‘3% Surcharge’.

This adds a 3% liability to each ‘slice’ of the relevant property’s value for the purposes of calculating total SDLT liability, including the zero rate band. Effectively, on a standard residential property, it means that each ‘band’ jumps by 3%.

There are exceptions which may render the Surcharge not payable, but what should be borne in mind is that this is distinct from scenarios where the surcharge is refundable. An example of the latter is where a second residence is bought and then becomes the primary residence afterward when the old primary residence is sold.

Even if that change happens days after the initial purchase, the surcharge must still be paid on the initial transaction and then reclaimed once the subsequent change occurs.

The 3% surcharge caused a lot of confusion when it was launched in April 2016, and the truth is that even now, it is not widely understood by many, including solicitors. It’s always best to seek expert advice when entering into the sort of transaction which may incur the HRAD, to ensure that you not only pay the correct amount, but that you have the correct amount available at the relevant time.

Suddenly finding you’re several thousand pounds short after exchange because of a miscalculation can lead to increased borrowing or even losing the purchase and your deposit.

Non-UK Residents

As of April 2021, non-resident buyers of UK residential property are subject to an additional surcharge of 2% on each slice of the value of the property for the purposes of SDLT calculation. As with HRAD, this means an additional levy of 2% on each slice including the zero-rate banding.

It is vital to note that the criteria for determining ‘residence’ for the purposes of the surcharge are distinct and separate from other definitions, and nationality, citizenship and even residence under the UK Statutory Residence Test are irrelevant for this purpose.

Essentially the test relates to the number of days spent in the UK in the 12 months prior to the ‘effective date’ of the purchase (usually the date of completion). That number of days is set at 183 – any less and the buyer will be deemed non-resident for the purposes of the surcharge.

As with the HRAD, reliefs are available, including relating to ‘crown employment’ (armed forces, diplomatic service etc). It should also be noted that this surcharge specifically applies to SDLT in England and Northern Ireland, and is not applicable to purchases in Wales or Scotland.

Conclusion

As you can see from just this small selection of examples, there is no hard and fast answer to he question of how much Stamp Duty you may pay. The liability will depend on numerous relevant factors involving the property itself, your own personal circumstances and even the way in which the property is purchased.

The best preparation you can make is to engage the services of a tax expert at your earliest opportunity, and make a realistic assessment of the potential liability before an offer is even made on the property.

Despite the fact that mortgage lenders will require you to answer detailed questions about your income, credit history, address history and various other detailed information before they make a decision as to whether to lend you money, they won’t ask you about your SDLT liability or whether you have the funds in place to meet it.

Solicitors, upon whom you may rely for SDLT advice, cannot actually provide that advice and will often miss nuances that may make significant differences to your overall liability.

Even if you are able to purchase without mortgage assistance, the sorts of numbers involved in SDLT, and the potential financial pitfalls involved in getting it wrong, mean that it’s always worth getting a detailed and accurate assessment of what’s what before you sign on the dotted line.

How much is Stamp Duty? More than you might think. Sometimes less than you might imagine. But costly in ways too numerous to properly contemplate if you get it wrong.

Cornerstone Tax is the UK’s leading property tax advisers, specialising in Stamp Duty Land Tax. We’ve reclaimed over £15 million in overpaid SDLT in the last 12 months. Contact us for stamp duty advice, or to see if you are eligible to claim a refund from HMRC on overpaid Stamp Duty