Stamp Duty explained
Stamp Duty is the tax payable to the government for changing the documents that specify who owns a particular property.
Stamp duty was first introduced in the UK in 1694; and continues to this day through a series of stamp acts.
Stamp Duty Land Tax
The "Stamp duty land tax" (SDLT) was introduced by the Finance Act 2003. It largely replaced stamp duty with effect from 1 December 2003. SDLT is a form of self-assessed transfer tax charged on "land transactions".
For typical transactions in land, such as the buying and selling of a residential house, there is little change from stamp duty, except that a tax return is required to be made to the HM Revenue & Customs (previously Inland Revenue) and documents no longer need to be given a physical stamp. Like any other self-assessed tax, but unlike stamp duty, HM Revenue & Customs is able to enquire into an SDLT return and raise assessments to recover unpaid SDLT.
Whether or not tax is payable Her Majesty's Revenue and Customs require a Return to be received by them within four weeks of the transaction completion. Failing which, they have power to levy a fine on the tax payer - the fine is not for failure to pay the tax but for failure to make the return.
When a return is accepted by HMRC they provide a Certificate without which it is impossible to register a change in the land ownership.
Stamp Duty for residential land purchases
The amount of stamp duty for residential land purchases depends on several key factors: eg new build home, economic area and lastly the value of the property. It works on a percentage basis where the percentage payable applies to the whole of the purchase price.
For example, a house priced at £250,000 would attract an SDLT of £2,500, but one of £250,001 would be liable to SDLT of £7,500.
One result of this banding is that it has a distorting effect on the market, because a house is very difficult to sell at prices just above each threshold, for example, £255,000.
Today, there is no stamp duty payable on properties up to £125,000. It is charged at 1% on houses costing between £125,000 and £250,000, 3% on those worth from £250,000 to £500,000, 4% for those sold for more than £500,000 to £999,999.
From April 2011, properties being sold for over £1,000,000 incurred an increased SDLT to 5% and from 24th March 2012, properties over £2,000,000 will incur SDLT of 7%. In London, the average asking price for a home is £402,000, which would mean stamp duty of more than £12,000.
Stamp Duty calculator
Here is a link to MoneySavingExpert's simple Stamp Duty Calculator
|
Consideration |
Rate |
|
Up to £125,000 |
0% |
|
£125,000 to £250,000 |
1% |
|
£250,000 to £500,000 |
3% |
|
£500,000 to £999,999 |
4% |
|
£1,000,000 to £1,999,999 |
5% |
|
£2,000,000+ |
7% |
Note, for properties over £2,000,000 being purchased by a corporate body, the SDLT will be 15%.
Disadvantaged Areas Relief
The DAR, or Disadvantaged Areas Relief was abolished in April 2013. Any transaction with a effective date on or after 6th April cannot claim DAR. This had been set up by the Government to encourage property transactions in areas deemed to be at a 'disadvantage'. The DAR was available to approximately 2,000 locations in England, Wales, Scotland and Northern Ireland.
Claims for DAR can be made for transactions that were effective before 6th April 2013, but need to be completed before 5th May 2014. We recommend discussing this with your conveyancing solicitor, as an SDLT return needs to be prepared even if the property qualifies for Disadvantaged Area Relief. More details can be found here: http://www.hmrc.gov.uk/sdlt/reliefs-exemptions/disadvantaged-areas.htm#3
page last updated April 2013