16th May 2016
Thanks to the newly-reformed Stamp Duty Land Tax (SDLT), over 780,000 home-buyers saved £657 million in 2015, according to the HM Treasury.
The government changed the way SDLT worked, away from the ‘slab’ system, in December 2014 and, as a result of the change, 98% of people who paid SDLT saw a reduction in their cost.
What are the new rules?
Previously, under the ‘slab’ system, buyers would have had to pay SDLT at a single rate on the entire property price.
For example, if you bought a £280,000 property, you would have paid £8,400 SDLT, as you are buying a property between £250,000-£500,000, and this bracket requires you to pay 1% SDLT.
However, under the reformed system, buyers now only have to pay the relevant amount of tax on the part of the property price that is within each tax band.
So, with that same £280,000 property, you will only pay £4,000 SDLT.
This is because, under the new rules, you don’t pay any SDLT on the first £125,000, but then pay 2% on £125,000-£250,000 (£2,500), then 5% on anything above £250,000.
So, in this case, you will pay 5% on the £30,000 to make up the £280,000 (£1,500).
The bands for SDLT can be found in the table below:
Does this affect everyone?
Yes. And even though the new rules has saved 98% of home-buyers thousands of pounds so far, it should be noted that homes that cost their buyers anything over £937,000 will have seen their SDLT costs increase.
What about the changes that the government made in April this year?
The changes that the Chancellor brought in for April during his 2016 Budget in March mean that, if you go to purchase an additional property on top of the one(s) that you already own, you will have to pay an additional 3% SDLT on top of the standard amount.
So, if that £280,000 property mentioned earlier was your 2nd, you would have to pay £12,400, rather than £4,000.
The same process applies when working out SDLT for additional properties and the table below explains the different bands:
|Additional Property Purchase Price Band
||Rate of Stamp Duty
||Rate of Stamp Duty (3% surcharge)
|Over £1.5 million
So, what defines an ‘additional property’?
Simply put, any property that you buy that isn’t where you live (your main residence), is classed as additional.
This includes buy-to-let properties and holiday homes, so even if your main residential property is abroad and you decide to purchase in the UK, the surcharge will still apply to you.
If you find yourself buying a new home without selling your old home first, you will also need to pay the additional SDLT.
It’s important to remember that these changes also affect you if you are buying a home with your partner, or for your child, but already own a property yourself, as it will still be seen as your 2nd home.
In April last year, Scotland replaced SDLT with its own Land and Buildings Transaction Tax (LBTT). Despite this, the additional surcharge will still apply to you if you buy a property in Scotland.
Are there any exceptions where I won’t have to pay SDLT?
SDLT does not apply to properties that are valued at less than £40,000 and this is also the case for caravans, houseboats, mobile homes and non-residential/mixed-use properties such as flats on top of shops.
You can also find yourself exempt from the additional 3% SDLT if you find yourself going through a divorce, and are buying an additional property.
Is there something I can use to work out how much SDLT I will pay?
The HM Revenue & Customs SDLT calculator can be found here and, as with any change or adaptation to the housing and mortgage industry, it is beneficial to speak to a professional mortgage adviser.