Stamp duty land tax rates changed on 1 July 2021 for residential property transactions
The stamp duty holiday is beginning to wind down and enter its transitional period. The threshold at which tax charges begin is currently £250,001. This applies until the stamp duty holiday ends on 30 September, when the rate will revert to its usual level of £125,001 from 1 October 2021.
What is stamp duty land tax?
Stamp duty land tax is a tax that is paid on property or land transactions in England and Northern Ireland. In Scotland and Wales, which have different rates (and where their equivalent holiday has already ended), the tax is known as ‘Land and Buildings Transaction Tax’ and ‘Land Transaction Tax’ respectively.
As well as increasing Stamp duty land tax rates dependent upon the purchase price of a property, there are also different rates that apply dependent upon a purchaser’s circumstances, which can make the calculation of stamp duty complex.
What is the stamp duty holiday?
The stamp duty holiday is the phrase coined for the temporarily reduced rate of Stamp duty land tax (SDLT), which applies to residential properties in England and Wales purchased between 08.07.2020 until 30.06.2021.
The current reduction in the SDLT is due to the temporary increase to the nil rate band (from £125,000 to £250,000), which is the rate before you start paying the tax on a residential property and applies between 01.07.2021 until 30.09.2021.
John McCaffery, Tax Partner at Alexander & Co Chartered Accountants and Tax Advisors, said: “With different rates of stamp duty in different circumstances, many purchasers are often left confused with what needs to be paid. Where landlords, investors or sales through companies are involved, this becomes more complex.
“For landlords and investors, tax is an increasingly significant cost. We work with a wide range of property clients, providing proactive tax advice, to enable them to become more tax efficient.”
An initial stamp duty holiday was announced by the Chancellor in July 2020, to help bolster the UK housing market during the pandemic. This was then extended at Budget 21. From October onwards, the nil rate returns to the standard rate of £125,000.
Currently, first-time buyers do not pay any stamp duty on the first £300,000 of a property purchase. This will continue when the stamp duty holiday ends on 31 September 2021.
Residential stamp duty tax rates: from 01.10.2021 onwards
From 1 October 2021, the Stamp duty land tax rates revert as follows:
|Property or lease premium or transfer value||SDLT|
|Up to £125,000||0%|
|The next £125,000 (portion from £125,001 to £250,000)||2%|
|The next £675,000 (portion from £250,001 to £925,000||5%|
|The next £525,000 (portion from £925,001 to £1.5 million)||10%|
|Remaining amount (portion above £1.5 million)||12%|
Additional stamp duty land tax rates
The above residential rates only apply if the purchase is your only property and you are not a first-time buyer. Stamp duty land tax rates are much more complex when this is not the case, with different rates applying to additional homes, non-UK residents, purchases by companies and when more than one property is purchased as part of a linked transaction.
An additional 3% is levied if the purchase is an additional property or second home £40,000 or more (this is in addition to any property held worldwide, which has a value of at least £40,000).
Since 1 April 2021, non-UK residents must also pay an additional 2% surcharge.
Stamp duty land tax rates differ for commercial property and mixed-use properties:
|Property or lease premium or transfer value||SDLT|
|Up to £150,000||0%|
|The next £100,000 (the portion from £150,001 to £250,000)||2%|
|The remaining amount (the portion above £250,000)||5%|
When two or more transactions involve the same vendor and purchaser, stamp duty is paid on the total value of all transactions, which may give a different rate than if the transactions were counted individually. This also applies if the transactions are linked. Linked purchases can include where there are connected people or more than one transaction.
Stamp duty land tax rates for investors and developers
For investors and developers, where it is much more common for sales and purchases to be linked, or to include commercial or mixed-use elements, there are further complexities in calculating stamp duty. Where a purchase involves a company, there are additional rates and rules to consider including where a ‘super rate’ of SDLT can apply.
The super rate of SDLT, which is charged at 15%, applies when a residential property is being transferred to a company, where the purchase price exceeds £500,000 (subject to certain reliefs).
Annual Tax on Enveloped Dwellings (“ATED”) rules can also apply on the purchase of residential property by companies, levying an annual charge where the relevant conditions are satisfied.
Overpaid stamp duty land tax
The complexities of calculating different rates for different time periods, multiple purchases, purchases by companies and the fast-changing legislation (such as the non-UK resident surcharge) mean it is quite common for purchasers to overpay stamp duty. Obtaining professional advice will help to ensure you only pay what is required and a tax advisor can also assist in claiming back any overpayments from HMRC.
Actions to take
Stamp duty can be complex at the best of times. With the differing time-dependent rates for residential property introduced with the stamp duty holiday, it can be further complicated. The increased workloads that conveyancers and solicitors are faced with can lead to delays and miscalculations in stamp duty, especially given the ever-changing legislation.
When a purchase has additional complexities, such as in cases where the property is an additional home, purchased by a non-UK resident, or being bought by a company, the need for professional tax advice becomes even more apparent. When investors, developers or companies are purchasing land or property, professional Stamp duty land tax advice should be considered holistically, as part of a wider tax planning strategy.