Stamp duty rates: the five different charging structures for calculating SDLT
What Are Stamp Duty Rates & Exemptions? An Introduction…
Stamp Duty Land Tax (“SDLT”) is a tax that is levied on the purchaser of most interests in land. Historically, the rates have simply diverged for residential and non-residential rates.
However, over recent years, the government has turned up the dial on in respect of the complexity and the stamp duty rates. Taxing property transactions has been seen (along with other property taxes) as a rich seam of tax revenue. As such, we have seen hefty rates of tax for high value properties, properties purchased through companies and those buying a second property.
As a result, receipts from SDLT have more than doubled over the last decade. The raising stamp duty rates and additional complexity are both responsible for this.
We are now left with five different charging structures. Each structure may set out different stamp duty rates and have its own set of exemptions. It might also be necessary to look how these structures and exemptions all interact with each other.
Enter at your own risk!
Different Structures of Stamp Duty Rates
The different structures of stamp duty rates can be summarised as follows:
- Residential rates (from 4 December 2014);
- First time buyers (22 November 2017);
- Residential subject to higher rates (from 1 April 2016);
- Higher-rate for certain transactions
We will now look at each in turn.
Residential – stamp duty rates
The stamp duty rates below apply for a basic purchase of a property. For example, they do not take in to account the 3% supplement that applies to the purchase of additional properties and also assumes that the purchaser is an individual (rather than a company or other non-individual).
It also does not take in to account the reduced rates that will apply for certain first-time buyers with effect from 22 November 2017 (see below)
|Property / lease premium or transfer value||Rate|
|Up to £125,000||0%|
|£125,001 to £250,000||2%|
|£250,001 to £925,000||5%|
|£925,001 to £1,500,000||10%|
|Excess above £1,500,000||125|
First time buyers – stamp duty rates
In order for the purchase to qualify for the reduced rate for first time buyers then:
- the purchase must be a single dwelling;
- the consideration paid for the property must not exceed £500k;
- ALL purchasers must be first time buyers (must not have owned a major interest in a dwelling anywhere in the world) AND must intend to occupy the property as their main residence
The relevant rates for first time buyers are as follows:
|Consideration not exceeding £300k||0%|
|Excess (but not exceeding £500k)||5%|
Clearly relief will not apply where the 3% additional rate applies as the relevant conditions will not have been met.
Residential subject to higher rates (3% surcharge for additional properties)
With effect from 1 April 2016 a 3% surcharge was introduced which supplemented the basic residential rate where the purchaser retained another residential property at midnight on the date of completion.
This is a policy objective by the Government to assist those seeking to get a foothold on the property ladder. Essentially, this is done by penalising anybody else who wants to buy a property!
The obvious targets of this measure are;
- Buy to let landlords; and
- Owners of second homes
There is an exemption for those trading their main residences for another. However, one must pay the additional rate if one has not completed on the sale of your old residence prior to the purchase of the new one. You have to physically claim the money back from HMRC and this can be done within 3 years of the purchase of the new one.
The rates are as follows:
|Up to £125,000||3%|
|£125,001 to £250,000||5%|
|£250,001 to £925,000||8%|
|£925,001 to £1,500,000||13%|
|Excess above £1,500,000||15%|
If the consideration for the property does not exceed £40k then there is no SDLT at all.
Other key points are as follows:
- Husband and wives (and civil partners) are treated as ‘one unit’ for the purposes of this tax;
- If parents purchase for a child then this will generally attract the 3%. It might therefore be beneficial to gift the money and allow the child to purchase (if this suits the circumstances!);
- A company (or non-individual) buying a residential property will always, in principle, pay the higher rate unless some other exception or exemption applies;
- If the purchaser is a trust then the type of trust will determine how the 3% rate applies
It should be noted that the additional rate does not apply where a property is purchased for mixed use. Neither will it apply where the ‘six pack’ rule applies – see below.
A higher rate for certain transactions…
This was very much a response to the perception that whole swathes of prime residential property in London was owned by offshore companies. Not only was the true ownership of these properties masked by the veil of incorporation (something currently being addressed by the creation of a beneficial register for such properties) but also the sale of the shares in these companies avoided stamp duty.
The action of putting a property in to the Company (which would have been liable to stamp duty in the normal manner) was called ‘enveloping’.
The higher rate rules attacked this first step of the transaction by imposing a 15% super rate (albeit, now, the rates of SDLT on normal property purchasers aren’t so far off – they were originally) where a company or other non-natural person acquires property over a certain price.
Originally this price was £2m however has now fallen to £500k. Technically, these are called Higher Rate Interests.
This creates a cliff edge.
|All of it||15%|
The rules were very much designed to target wealthy overseas investors purchasing a property they might live in only part of the year.
As such, there are reliefs for those who have purchased the property for commercial uses – including property development and letting. In terms of the latter, a bear trap is that it must be let on commercial terms to a third party. So it cannot be let to a family member on any terms.
These reliefs must be claimed and HMRC has been active in checking the position where they are claimed. There is a clawback if the basis on which the relief was claimed no longer applies.
Other rules (Annual Tax on Enveloped Dwellings or ATED) targeted existing structures and imposed an annual tax charge based on the value of the property.
Non-residential or mixed-use property – stamp duty rates
Different stamp duty rates are set out in the legislation depending on whether one is purchasing residential or non-residential property. Usually, this will be blindly obvious. However, this is SDLT so nothing should be taken for granted.
Generally, the stamp duty rates for a non-residential transaction are lower than for a residential purchase.
Of course, one needs to determine what is a residential property (or not) for these purposes. This is an article in itself. However, the basis definition is that a building that is used or suitable for use as a dwelling or is in the process of being adapted for such use is residential property as is any land forming part of the gardens or grounds of such a building.
One important thing to note is the slightly odd outcome where a person purchases 6 or more residential properties as part of the same transaction. This so-called ‘six pack rule’ magically turns the properties in to non-residential properties and locks in the lower rates for non-residential transactions.
One should also bear in mind that Multiple Dwellings Relief may also be available in such cases.
|Up to £150,000||0%|
|£150,001 to £250,000||2%|
Where the consideration exceeds £250k then a shortcut is to multiply the consideration by 5% and deduct £10,500.
Checklist – the five different structures for stamp duty rates
- Is this a corporate purchase and are any of the dwellings individually being purchased for £500k or more? If yes –
- Does one of the commercial / business reliefs apply?
- Is it likely to apply for the 3-year claw back period?
- Interaction with ATED should not be overlooked
- Is the property being purchased by an individual? If yes –
- Are they first time buyers?
- Is this an ‘additional’ property?
- Does the property include any non-residential use?
- Is this a purchase of multiple properties? If yes-
- Does Multiple Dwellings Relief apply?
- Does the 6-pack rule apply?
Finally, be prepared for HMRC challenge. They also know the rules are overly complex and that investigations where some of the above intricacies are present may bear fruit.
If you have any queries on stamp duty rates or property taxes in general then please get in touch. You may also enjoy reading our help and advice articles about UK property investment for non resident investors more about the 3% additional rate and taxes on rented property. You can also view our property tax advice services here.