Stamp Duty Land Tax: Understanding the new rates and extensions

The Stamp Duty Land Tax (SDLT) holiday was launched to stimulate the property market and encourage growth in first-time buyers as a response to the drastic downfall in property transactions following the first lockdown period due to the pandemic. There have however been calls to amend this holiday to see tax benefit on contract exchange, rather than the current completion model following concerns over rising house prices trapping people into not being able to buy or even complete sales. Over 13,500 people signed a petition to push for this to change but were met with a firm stance of no change from the government quoting SDLTM07950 FA03/S44(5)(b), where a contract is considered substantially performed when the purchaser takes possession of property or at least 90%. Instead, the government’s solution was that as part of the Budget 2021 announcement, the Chancellor revealed that the current duration of the SDLT holiday was to be extended until 30 June 2021. After this period the nil-rate band (NRB) will be at a decreased rate until 1 October 2021 where it will then operate at its usual threshold.

 

What is SDLT?

SDLT is the tax that must be paid when you buy property or land, provided the value of the sale exceeds a certain amount in England or Northern Ireland. Scotland and Wales have different rates but will not be included in this article. There also exists some exemptions from paying SDLT, such as being a first-time buyer of a property or in situations where the property is changing ownership without payment. Generally, SDLT will be applicable to you if you buy: a freehold property, a new or existing lease, a shared ownership property or receive property for money. Regardless of whether a mortgage is taken out or cash payment is made SDLT may still apply.

 

The SDLT Holiday

Under the SDLT ‘holiday,’ the NRB for residential properties was increased from £125,000 to £500,000 and will end on 30 June 2021 after being extended from 31 March 2021 as part of the Budget 2021 announcements. After this date, the NRB will fall to £250,000 until 1 October 2021 whereupon the usual rate will then apply.

This could be seen as a breath of fresh air for those buying property first-time or otherwise, with reported savings up to £15,000 which would then tail off to £2,500 by September. Larger investors in real estate could also find some benefit from this as relief can be claimed on Property Redress Schemes (PRS), student accommodation and retirement homes; suggesting that the extension may have a positive effect on the property market as a whole.

Non-UK residents however should bear in mind that from 1 April 2021 a surcharge of 2% is to be imposed on all residential bands. This includes companies and other overseas entities.

The usual rates

The typical rates for SDLT on residential property is as follows:

Consideration (£) Rate (%)
0 – 125,000 0
125,001 – 250,000 2
250,001 – 925,000 5
925,001 – 1,500,000 10
1,500,001 and above 12

Note that these rates will resume from 1 October 2021. An extra 3% is also added for each threshold where additional properties of cost exceeding £40,000 are purchased.

Until 30 June 2021, the following temporary rates will apply:

Consideration (£) Rate (%)
0 – 500,000 0
500,001 – 925,000 5
925,001 – 1,500,000 10
1,500,001 and above 12

 

The following rates will apply in the period 1 July 2021 to 30 September 2021:

Consideration (£) Rate (%)
0 – 250,000 0
250,001 – 925,000 5
925,001 – 1,500,000 10
1,500,001 and above 12

 

First-time Buyer Relief is disapplied until 1 July 2021 where the current SDLT extension ends. This relief only applies on thresholds within the £500,000 NRB.

SDLT is usually handled by specialist agents or advisors, so you the buyer don’t need to worry about anything but what you owe for the purchase of the property. If you are unsure if you qualify for these reliefs or are a landlord seeking advice on taxes involved, feel free to contact us at info@wimaccountants.com or call us for a free consultation.

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