Stamp Duty Land Tax Explained

Stamp Duty Land Tax (SDLT) is a tax on land transactions in England and Northern Ireland. It is typically paid by the purchaser and forms part of the overall cost of acquiring a property. SDLT is paid by completing a land transaction return, self-assessing the duty, and making payment electronically to HMRC. Solicitors or conveyancers usually handle this process on behalf of the purchaser.

What is a Land Transaction?

A land transaction usually involves acquiring an interest in land, such as the sale of a freehold property or the grant or assignment of a lease. SDLT applies to both residential and non-residential property. The purchase process generally occurs in two stages:

1.    Contract – the purchaser and vendor enter into an agreement to buy and sell, setting the contract date as the disposal date for capital gains purposes.

2.    Completion – the property legally transfers to the purchaser, who then becomes entitled to occupy it. SDLT must be paid within 14 days of completion.

The location of the property is what matters for SDLT, not the residency of the purchaser. Non-UK residents purchasing land in England or Northern Ireland are liable for SDLT.

How SDLT is Calculated

SDLT is a percentage of the consideration paid for the property, which includes money or money’s worth. No consideration usually means no SDLT, so most gifts of property, such as a parent transferring a house to a child, are exempt. Exceptions include transfers to companies connected to the seller or situations where a mortgage or other debt is assumed by the purchaser, which counts as consideration.

For contingent payments, such as a price dependent on planning permission, SDLT is initially calculated on the assumption that the condition will be met. If not, an amended return can be filed for a repayment with interest.

Residential Property Rates (Effective from 1/4/2025)

• Up to £125,000: 0%

• £125,001 to £250,000: 2%

• £250,001 to £925,000: 5%

• £925,001 to £1.5 million: 10%

• Above £1.5 million: 12%

Non-Residential Property Rates

• Up to £150,000: 0%

• £150,001 to £250,000: 2%

• Above £250,000: 5%

SDLT is charged only on the portion of the consideration within each band. Additional surcharges may apply:

• Non-UK resident surcharge: 2% on residential properties.

• Additional properties surcharge: 5% on second homes or buy-to-let properties.

First-Time Buyers

First-time buyers purchasing a main residence may benefit from reduced rates:

• No SDLT on the first £300,000 of the purchase price

• 5% SDLT on the portion between £300,001 and £500,000

If the property exceeds £500,000, normal residential rates apply. Relief is only available to individuals who have never owned a residential property and intend to live in the property.

Additional Properties Surcharge

Purchases of second or additional residential properties attract a 5% surcharge on top of standard rates. Properties under £40,000, caravans, mobile homes, and houseboats are exempt. The surcharge applies to each purchaser in joint transactions if any of the buyers trigger the conditions. Relief is available if the new property replaces the main residence and the previous main residence is sold within 36 months.

For joint property purchases, the 5% higher rate surcharge applies if any of the purchasers would trigger it individually. To determine this, all four conditions below are checked for each purchaser. If even one purchaser meets all the conditions, the surcharge applies. In such cases, it may be worth considering whether the property should be purchased in the name of the person who does not trigger the surcharge.

A land transaction will be subject to the 5% surcharge if any joint purchaser meets all of the following conditions:

Condition A: The property consideration is £40,000 or more.

Condition B: The property is either a freehold or a leasehold with 21 years or more remaining.

Condition C: The purchaser owns another residential property anywhere in the world worth £40,000 or more at the end of the transaction day.

Condition D: The replacement test is not met.

The replacement test is considered met if:

1. The purchaser or their spouse/civil partner has sold a property that was their main residence in the past 36 months, and

2. They intend for the newly purchased property to be their main residence.

If the replacement test is met, the 5% surcharge does not apply.

Multiple Dwellings Relief

When purchasing multiple dwellings in a single transaction, Multiple Dwellings Relief (MDR) may apply. MDR allows SDLT to be calculated on the average price of the dwellings rather than the total consideration. This can result in a lower overall SDLT liability. However, the final SDLT due cannot be less than 1% of the total consideration.

Land Transaction Return

The buyer must submit a land transaction return to HMRC within 14 days of completion, even if no SDLT is due. Payment is also due within 14 days. Amendments can be made within 12 months if necessary, for instance to correct overpayments. Interest applies to late payments, and penalties may apply for late or incorrect returns.

Speak to an Expert

Stamp Duty Land Tax can be complex, and small details can make a big difference to how much you pay. Our team of experts is here to help you navigate the rules and ensure you’re making the most informed decisions.

Contact us today for personalised advice on residential and non-residential property transactions, first-time buyer relief, additional property surcharges, or any other SDLT queries. We can guide you through the process and help optimise your tax position.

Authored by: London Team