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Stamp Duty: What Do You Need to Know?

Information on Stamp Duty on Property - Priestley's Estate Agents

Stamp duty happens to have a very long and varied history, with its application going back to as far as the year 1964. Its introduction was meant to make it easier for the authorities to use taxes to raise funds, which would then be used to finance the various war-related activities in the governments’ continuing hostilities with the French.

The name came about due to the fact that a person needed to purchase a physical stamp that would in return be applied to a printed or written document. Its application was meant to apply that the document’s holder had paid all the requisite taxes and that the transaction could now be certified as being legally complete.

A close look at its history indicates that stamp duty was not only used with physical properties, but with all kinds of legal instruments. This included instruments such as cheques, newspapers, insurance policies, dice, and playing cards.

Today, if you buy a house which has a value of more than one hundred and twenty-five thousand pounds, you will be required to pay SDLT on that property.

Stamp Duty: What Is It?

The current SDLT threshold is £125,000 for residential properties and £150,000 for non-residential land and properties.

It is important to note that you will be required to pay this fee regardless of whether you are using a mortgage or making an outright purchase—the tax is applied to all leasehold and freehold properties.

For those looking to make a purchase in Scotland, they have to pay for what is known as LBTT (Land and Buildings Transaction Tax). For property buyers in Wales, they do not have to pay Stamp Duty; instead, they get to pay the Land Transaction Tax.

How Much Does the Stamp Duty Cost?

When it comes to paying this tax, you ought to understand that it does not have a fixed or set rate. What you will find is a rate band for the tax. This means that the tax applicable to you will be calculated based on the total cost of your property. There are various rate bands for various property rates.

For instance, any person looking to acquire a property with a value of “275,000 their SLDT will be calculated in the following manner:

  • 0% on the initial £125,000 = £0
  • 2% on the following £125,000 = £2,500
  • 5% on the last £25,000 = £1,250

This means that the total tax applicable for that property will be £3,750.

Applicable Stamp Duty Rates for Properties in Northern Ireland and England

Min cost of property Max cost of property Stamp duty rate
£0 £125,000 0%
£125,001 £250,000 2%
£250,001 £925,000 5%
£925,001 £1,500,000 10%
£1.5m+ 12%

Standard LBTT (Land and Buildings Transaction Tax) rates in Scotland

Min cost of property Max cost of property Stamp duty rate
£0 £145,000 0%
£145,001 £250,000 2%
£250,001 £325,000 5%
£325,001 £750,000 10%
£750,000+ 12%

Standard LTT (Land Transaction Tax) Rates in Wales

Min cost of property Max cost of property Stamp duty rate
£0 £180,000 0%
£180,001 £250,000 3.5%
£250,001 £400,000 5%
£400,001 £750,000 7.5%
£750,001 £1,500,000 10%
£1.5m+ 12%

Note: The Stamp Duty rates applicable to residential leasehold properties are often charged in a different manner.

Second Homes Stamp Duty

If you are looking to buy another property, e.g., a buy-to-let asset or a second home, note that you will be required to pay an additional three percent in Stamp Duty. This is in addition to paying the rates that are applicable to each rate band mentioned above.

The additional rate is, however, only applied to houses or properties that have been valued at more than forty thousand pounds. Houseboats, mobile homes, and caravans are exempted from the additional rate.

In the event that you choose to purchase another property, but are yet to offload the other one, you will by law be required to pay the increased SDLT rates as it legally means that you have two properties in your possession.

In the event that you give away or get to sell the other residence within three of acquiring the second residence, you can submit an official form to receive a refund. The refund will be applied to the higher rates imposed when acquiring the second home.

It is possible to ask for a refund for the quantities mentioned here if it meets the following conditions:

  • You ask for a refund within a period of 3 months after selling the first home
  • The main residence is sold within a maximum period of 3 years
  • Request for a reimbursement within 12 months after filing the SDLT returns

First-time Home Buyers

For one to be classified in this category, they will need to be buying their very first residence. This means that they should never have held any freehold premises in the past. In addition, one should not have held any leasehold interest in any asset locally or internationally.

Stamp Duty was abolished in November 2017 for all investors purchasing their first homes. However, this is only applicable to properties that are not worth more than three hundred thousand pounds.

Those purchase properties valued at three hundred thousand pounds but worth less than five hundred thousand pounds are required to pay a flat rate of 5%. What this means is that all homeowners who fall in this particular bracket will get to save as much as five thousand pounds on their SDLT.

Note: Stamp Duty is often calculated in terms of the primary residence rates for all assets that have been valued at more than five hundred thousand pounds.

Starting October this year, all first-time owners who fall under the Shared Ownership programs can now start asking for relied on properties that have a total net worth of less than five hundred thousand pounds. The alteration is applicable to all assets that were purchased after the twenty second date of November last year.

For buyers that had chosen to pay the rates in phases instead of paying it in bulk, and were previously not deemed eligible for this relief, they are now in a position to do so. All a buyer has to do is file an SDLT form—but make sure that you have met all the requirements put in place by the authorities so as to receive the refund.

Also, buyers that made the decision to pay the levy based on the total value of their assets can also request for a refund provided that they meet all the set requirements.

Stamp Duty Relief for Joint Ownership

For recently married couples who are looking to purchase a joint asset, they will both need to meet the eligibility requirements set for all first-time home buyers for them to get a relief on their Stamp Duty.

If you are not married, you can still be eligible for a reduction provided that the other individual who has been named on the property deed meets the eligibility requirements for first-time home buyers.

However, you need to be aware of a few factors before you start applying for this relief:

  • The total saving for any asset that is to be acquired should not exceed five thousand pounds. This means that the total number of names that have been listed on that property deed is not an issue.

What this means is that if the application for a mortgage only bears a single name, the decision to be made will be based on the individual’s net income. As a result, the total amount to be advanced to that individual to purchase a house by a mortgage lender will be based on their income alone.

  • There is a need to carefully look at what is likely to occur in the event that the two individuals listed in the property deed split up. Where a deed bears the names of two people, it means that they both have a legal claim to the property in question. Where the asset only has a single name on it, then chances are high that one of the partners will legally be left with nothing when the split happens.

SDLT Tax: When Should You Pay?

All property owners are required to submit their SDLT returns and ensure that they have paid everything that they owe within a period of thirty days. This means that you have one month from the date of purchase to submit your returns.

In the event that a property buyer fails to do this within the stipulated thirty days, then it means that the HMRC can legally apply an interest on the rate or even impose a penalty.

What are the Penalties for Late Payments?

There is an automatic penalty imposed on all property owners who are not able to submit the return forms within the stipulated time frame. However, the total amount that is to be paid will be based on how late the returns are, based on the total amount of time that has elapsed since the set deadline.

You can be required to part with a fixed fine of:

  • £100 when you are late with three months
  • £200 when the returns are late by more than a period of three months

In the event that the returns are not sent to the HMRC within 12 months, then you will need to pay a fixed penalty as well as a tax-based penalty.

Can You Appeal Against a Penalty?

It is possible to appeal against any penalty that has been imposed on by the HMRC if the reason that you did not file the returns by the stipulated time has anything to do with the occurrence of unusual events. This refers to events that could not be foreseen or which were beyond your personal control.

When Are You Not Liable to Pay Stamp Duty?

You automatically get to avoid paying the SDLT when you acquire a property valued at less than one hundred and twenty-five thousand pounds. However, many buyers are not able to do this, and so end up paying the requisite levies.

You should note that there are instances where the rates can be reduced or not paid at all. They include:

  • Selling price is slightly past the set rate band. For such a case, request the estate agent or seller to accept a lower price for the property.
  • Property transfer in a divorce or separation. In the event that you and your partner or spouse has chosen to separate, you will not need to pay any SDLT when transferring the portion of that asset’s value to the other person whose name appears on the deed.
  • Deeds transfer. This is applicable when a person is transferring the deed to their residence to another individual. It does not matter whether this is in the form of a will or as a gift. Either way, no party will be required to pay the SDLT levy on the total value of that asset.

Note: When you choose to exchange assets with another party, both parties involved in the exchange will need to pay a levy on the asset that they will receive based on the existing market value of the said asset.

How Do You Pay Your Stamp Duty?

In many cases, the solicitor will be the one to deal with these returns. He or she will take care of the Stamp Duty return as well as handle any other payments that may be due to you. You could also choose to handle it on your own without requesting assistance from a solicitor. Whichever option you choose, make sure that it is taken care of, and that it is submitted on time.

This means that even if the home you have recently acquired is valued at less than one hundred and twenty-five thousand pounds, you still must submit a Stamp Duty return. The only exception is if you have been exempted.

Sending Online Returns

If you happen to be a legal conveyancer or solicitor acting on behalf of your client, you will need to open an online account before you can send any returns.

Once registered, you will receive a password and a Government Gateway user ID. This is what you need to access the account so as to send the returns. Once the returns have been submitted, you will be issued with the UTRN (Unique Transaction Reference number) and the SDLT 5 certificate. Make sure that you print the two as soon as you have received them and then ensure that they are sent to the land registry.

Here, you will have an option of either using the free Stamp Taxes services provided by the HMRC or the other commercially available software solutions. When you choose to use the Stamp Taxes services provided by the HMRC, make sure that the returns are submitted online.

The HMRC will not accept any returns that have been filled online but sent back in form of print or which have been filled in by hand.

Are There Online Transactions that May Require Additional Forms?

The SDLT5 online certificate will normally contain all the details related to the initial asset address for each business deal.

In cases where there are various addresses included in it, or where more than a single buyer or seller is involved, you will need to head over to the `View, print & store` area of the SDLT portal.

Once accessed, make sure that you print the following forms:

  • SDLT2
  • SDLT3
  • SDLT4

Once all these forms have been printed, make sure that they are sent over to the land registry. These forms should also be accompanied by the electronic version of the SDLT5 certificate.

It is essential that you retain a copy of all the submitted forms as well as the electronic certificates. In addition, note down the UTRN transaction reference for each deal.

Where a transaction happens to have many parties, you can still be able to submit the return forms electronically. Note: The maximum number of entries you can submit is ninety-nine.

Is It Possible to Send Paper Returns to HMRC?

For those that would rather send paper returns than do it electronically, then they will need to use the SLDT1 form. Such an individual can request for this form either by phone or online.

Once the form has been duly filled, it should be sent to HMRC. The form should be accompanied by a payment for any fees that may be due for the SDLT transaction. Ensure that no additional correspondence is sent together with the form. Adding another correspondence may delay the process of sending the SDLT5 certificate.

Note: For each pay slip that is sent together with the SDLT1 form, only one URTN will be printed on the form. This means that it can only be used for a single transaction.

In addition, you should note that:

  • SDLT1 return form copies cannot be used for multiple transactions
  • If you are not sure of how to go about filling in the forms, make sure that you seek proper guidance from a solicitor or check here. The notes will provide you with a step-by-step guide on what you need to do.
  • Always make sure that you have included a valid code for your local authority. If you fail to do so, the HMRC will be forced to reject the return.
  • You should allow a minimum of three business days for the return to get to the HMRC

Are there Paper Transactions that Require Additional Forms?

There are instances where the property buyer may need to send additional forms with the SDLT1 form. This includes:

1. SDLT2—applicable where there are more than two sellers or buyers involved in the deal

If you look at the total number of entries involved and realize that they are more than ninety-nine in total, ensure that you obtain an additional schedule to be used with the remaining entries.

Ensure that all the details that have been requested in the schedule are included.

2. SDLT3—used where there are many assets covered in a single business deal

Make sure that you have filled in SDLT1 and 3 for all the properties that are included in that deal.

Where there are more than one hundred properties covered in the deal, acquire another schedule to be used with the remaining assets.

All details that have been requested for in the SDLT3 form must be captured.

3. SDLT4—for use in certain residential deals, commercial transactions, and complicated leases

The SDLT1 should accompany the SDLT4 form. This form is used for transactions that fall in the following categories:

  • Mineral rights have been reserved
  • The property or business transaction also includes a business sale agreement
  • The parties involved have made the necessary arrangements with the HMRC. This often falls under a category known as the deferment provisions.
  • The buying party is an organisation, company, or legally registered firm
  • Certain parts of the consideration are uncertain or dependent
  • The parties involved have reached out to the HMRC for guidance on how the law is applicable to such a transaction or are using (CAP1) Clearances and Approvals 1.

What Happens If the Paper Returns Have a Mistake?

HMRC typically checks all the SDLT1 paper returns. If they notice that certain details are missing, are unclear or wrong, they will send you a form known as the SDLT8. The form is used to capture any missing or incorrect information that was submitted with the paper returns.

Note: The SDLT5 certificate cannot be issued for a paper return that contains incorrect, missing, or wrong information. You must, therefore, make sure that you have verified the validity of all the details in your paper returns before sending them back to the HMRC.

If you would like to know more about Stamp Duty or are looking for a home within the Leeds or Bradford area, be sure to get in touch with Priestley’s Estate Agents.