What is Stamp Duty?

Stamp Duty Land Tax or SDLT dates back to the end of the 17th century and is a tax charged on property purchased in England and Northern Ireland.

This tax is owed when:

• Buying a freehold property
• Purchasing a leasehold / share of freehold property (typically a flat)
• Buying a property through a shared ownership scheme
• Any kind of property transfer in exchange for payment – such as taking on a mortgage or acquiring an agreed share in a property asset (but not remortgaging)

Note that Wales has its own form of stamp duty called the Land Transaction Tax (LTT). Scottish residential property buyers also pay the Land and Buildings Transaction Tax (LBTT). There are also different stamp duty rates for commercial property purchases and for those that are non-UK residents.

Stamp duty charges vary according to the purchase price of the property. There is a series of tax bands with rising rates – meaning that the lower the buy price, the lower the tax will be.

Since late 2014, the calculation changed from being a “slab tax” – where each price bracket had its own associated applicable percentage charge – to an “incremental” structure.  This essentially means that the stamp duty is effectively split out as the purchase price point increases above each threshold.

Stamp duty land tax regimes can be changed by the Chancellor of the Exchequer as part of budget announcements.  In 2017, for example, Philip Hammond introduced first-time buyer stamp duty relief.

This can occur in a “mini” form, such as in September 2022, where the former (and temporary) Chancellor Kwasi Kwarteng announced such changes to the thresholds. These remained when current Chancellor Jeremy Hunt took over leadership of the Exchequer.

There are also “emergency” budgets – where more radical decisions regarding stamp duty are made.  The most recent example was during the COVID pandemic where property buyers under certain thresholds did not have to pay any SDLT under what was named the “stamp duty holiday”.

Latest Reforms to Stamp Duty

Aimed at boosting the house sales market, SDLT rates were revised on 23rd September 2022, as shown in the table below:

Despite criticism of misplaced priorities, the stamp duty updates benefit home buyers in the following ways:

• Stamp duty will not be charged on the first £250,000 of the property’s sale price. This doubles the previous threshold (from £125,000);
• First-time buyers do not need to pay stamp duty on the first £425,000 of the property price. However, this must not be less than £625,000. Prior to this, the relief was set at £300,000 on properties sold for less than £500,000;
• Second / additional property buyers will also benefit from the rising buildings transaction tax thresholds – although will still have to the 3% surcharge to pay (see below);
• Second / additional property purchases for under £40,000 will not incur a stamp duty charge;

When is Stamp Duty Paid?

To boost efficiencies in the tax collection system, since March 2019, stamp duty payment was required within 14 days after completion day. This was reduced from 30 days previously.

In most cases, the buyer will transfer the funds during the latter part of the conveyancing process (typically between exchange of contracts and completion).

The solicitor / conveyancer will submit an stamp duty return to HM Revenue and Customs on behalf of the buyer in good time.

Higher Stamp Duty Rates for Additional Properties

Since April 2016, property buyers acquiring second properties such as buy-to-let investments or holiday homes are required to pay a 3% stamp duty surcharge on the purchase price (i.e. on top of the existing rate).

The stamp duty calculator above shows how much of the surcharge will be owed depending on the property price threshold.

Why did the government choose to charge this extra level of stamp duty?

With housebuilding volumes still lagging, it’s arguable that the government’s aim was to discourage second home buying.

Helping first time buyers by charging a standard level of tax is aimed at creating more of a level playing field.

What if am replacing my main residence (but will own 2 properties temporarily)?

If you have not sold the property that is your main residence on the day you complete on the purchase of another property, you will still have to pay stamp duty.

However, you can apply for a refund if you sell your property that was your main home within 36 months. Note that you should not let the property as that could affect your ability to get the refund.

What if I go over the 36 month minimum for owning 2 properties?

It may be possible to get a refund of the 3% surcharge provided that you can prove that there were exceptional circumstances that prevented you from selling.

You will need to get in touch with the HMRC to provide your full details alongside:

• Information on the main buyer of the property;
• A full explanation of why you were unable to sell (such as illness, death in the immediate family or bereavement);
• Information on the property where higher stamp duty was paid – including the unique transaction reference number (the solicitor the handled the sale can provide this);
• Information on the previous main residence;
• How much stamp duty at additional rates were paid and the amount of refund you are requesting;
• Your bank details.

Stamp Duty Tax if Your Are Not Resident in the UK

Property buyers that are outside of the UK for 183 days or more during 12 months before the purchase are not deemed to be a resident of the country.

In these scenarios, there will typically be a 2% surcharge on the property’s purchase price – bar the following circumstances:

If you are married or in a civil partnership, and one of you is a UK resident whilst the other is abroad, then both partners get the same tax treatment. Note you will have to be buying the property together.

Special Stamp Duty Rates

It’s worth noting the different rules and rate calculations that apply.

Corporate Bodies

Companies, partnerships and collective investment schemes pay stamp duty at 15%.

The purchase will be exempt from this charge if the property is bought under the following conditions:

• As a property rental and/or for development purposes
• As a publically available property
• By financial institutions buying property for lending purposes
• For farming use
• As part of a qualified housing cooperative

Commercial and Mixed Use Properties

Non-residential or mixed-use properties are subject to incremental stamp duty proportions when the sales value is £150,000 and over.

Freehold Sales and Transfers

Stamp duty will also be charged on lease premiums and transfers as shown in the table below:

Non Residential / Mixed Leasehold Property Sales and Transfers

When purchasing a non-residential property or one with both commercial and residential elements, how much stamp duty owed is based on:

• The purchase price of the lease, also known as the “lease premium”;
• The total value of the annual rent over the lifetime of the lease, referred to as the “net present value” (NPV). As shown in the table below, no stamp duty is due if the NPV is under £150,000.

Shared Ownership Homes

Properties purchased through an approved public body (such as a shared ownership scheme, housing association or local housing authority) stamp duty will still be owed.

Note that:

• If you’re purchasing a share of the property, you will only have to pay stamp duty on that amount (not the full price);
• If you decide to purchase a greater share in the future, extra stamp duty will only be owed if you exceed 80%;
• It’s possible to pay the SDLT in stages.

Multiple Purchases or Transfers

A “linked” purchase is one where 2 or more property transactions (such as a portfolio sale) involve the same buyer and seller.

The buyer pays SDLT on the gross value of the linked transactions. This could result in paying a higher rate of tax compared to buying the properties individually.

Companies and Trusts Residential Property Purchases

There are specific rules that govern the amount of stamp duty payable on specific company and trust-related property sales.

Beware of Stamp Duty Tax Scams

It’s worth being aware of the scams out there.

HM Revenue and Customs have, for example, warned against so-called “tax repayment agents”. The ploy involves contacting recent homebuyers and promising rebates on overpaid stamp duty in return for a fee.

If you receive such a call, email or text message, be sure to contact your conveyancer who can verify the details. Although such scenarios rarely occur, it’s often a case of dealing with HMRC directly who will not charge any fees.

Land and Buildings Transaction Tax (LBTT)

Land and Buildings Transaction Tax (LBTT) applies to residential, commercial and mixed-use property (and land) purchases as well as non-residential lease transactions.

LBTT replaced the UK Stamp Duty taxation system in April 2015.

Paid within 30 days after the sale completes, similar to current Stamp Duty (SDLT) calculations in England, Wales and Northern Ireland, rates increase in line with the agreed purchase price. Open market, auction, private, off-market and portfolio property buyers must all pay this tax.

The amount of payable LBTT is only applied as a percentage of part of the price above each band (or threshold) and up to the next band. Note that LBBT is not payable on removable fixtures or fittings (chattels) such as kitchen appliances, freestanding wardrobes, carpets and curtains.

We would recommend confirming the amount payable with a conveyancing solicitor when the missives are concluded (at the latest). Bar exceptional circumstances, they will organise the LBTT transfer to Revenue Scotland.

LBTT for Residential Properties

This is the most common way stamp duty is levied in Scotland.

When buying a house or a flat for residential purposes, LBTT is due on increasing portions of the property. Any purchase below the lowest threshold (currently set at £145,000) will not incur tax.

Below are the latest bands and rates:

This tax is due if the property is under construction or conversion (from commercial to residential, for example). The above LBTT rates must also be paid if the building is being used for any kind of student or armed forces accommodation.

Bar some examples, an LBTT return must be sent if a property is sold for over £40,000 (even if no tax is due).

Scotland First Time Buyer Relief

Introduced in 2018, first-time buyers anywhere in Scotland for residential properties up to the value of £175,000 benefit from a 0% LBTT rate.  This represents savings of up to £600.

LBTT on Residential Property with Additional Dwelling Supplement (ADS)

Similar to the Stamp Duty surcharge in England and Northern Ireland, extra LBTT is due on second properties – such as buy-to-let purchases and holiday homes. This is known as the Additional Dwelling Supplement or ADS.

This further layer of tax is due should the buyer already own one or more residential properties.

ADS is also due for purchases by companies, partnerships or other “non-natural” persons.

Additional Dwelling Supplement (ADS) Rates

The Additional Dwelling Supplement for any properties stands at 6% (increased from 4% on 15th December 2022).

As shown above, there is no tax due on property purchases at up to £40,000.  Note that this lower threshold does not apply where the sale involves over 6 properties as part of the same portfolio transaction.

Always consult a qualified conveyancing solicitor to clarify any matters here.

Is ADS due if I’m replacing my main residence but end up owning 2 properties?

The short answer is no.

However, ADS will be due if you have not sold your main residence on the day you buy your new property.

You will then need to apply for an ADS refund through Revenue Scotland within 18 months.

Existing agents can do this via the SETS portal and new agents via the Repayment Claim Form.  Or you can do it yourself via the online repayment claims process.

Stamp Duty on Non Residential Property in Scotland 

LBTT is levied on rising proportions of a non-residential property’s sales price over the value of £150,000.

Non-residential property includes land, mixed-use and commercial property as well as where the sale involves 6 or more residential properties as part of a single transaction.

In additional to shop and office acquisitions, care / childrens homes, drug / alcohol rehabilitation centres, student halls of residence, hospitals / hospices, prisons, forests, agricultural land (used as a working farm) and hotels also incur non-residential LBTT.

Non-residential LBTT rates and thresholds on transactions after 25th January 2019:

LBTT is levied on the chargeable amount within each threshold.  For example, if a non-residential property is purchased for £550,000 there would no charge on the first £150,000. There will be a 1% charge on the next £100,000 (the second band) and then a 5% charge on the remainder £300,000.  Here, the total amount of LBTT due would be £16,000.

LBTT on Commercial Property Leases

Land and Buildings Transaction Tax (LBTT) is also applicable to commercial property leases – payable by the tenants (lessees).

The amount of LBTT due will depend on the amount of rent and lease premiums (chargeable consideration) being paid.

LBTT on Non-Residential Rent

Revenue Scotland last updated rates and bands in early 2020.

Commercial lease LBTT rates and thresholds on transactions after 7th February 2020:

LBTT on Lease Premiums

If there are extra charges in addition to rent – typically lease premium payments – the standard tax rates and bands for commercial property acquisitions apply.

Please note the following

• If the average rent is set at a minimum of £1,000 per annum, the 0% tax band does not apply in relation to the premium. These payments will be taxed at the rate of the next threshold;
• The LBTT tax return must be submitted by the tenant (and not the landlord).

Land Transaction Tax (LTT) 

Land Transaction Tax (LTT) applies to residential, commercial, land and mixed-use property purchases across Wales.

The tax is due on freehold and leasehold sales as well as transfers of Welsh property or land in exchange for money. Open market, auction, private, off-market and portfolio property buyers all need to pay this tax.

LTT replaced Stamp Duty Land Tax (SDLT) on April 1st 2018 and has a minimum threshold of £225,000 for both residential and non-residential property / land.

The amount of payable LTT is only applied as a percentage of part of the price above each band (or threshold) and up to the next band.

Paying Welsh Stamp Duty 

Unlike Stamp Duty in England, Northern Ireland and Scotland, the Land Transaction Tax is self-assessed.

This means it’s the sole responsibility of the property buyer (and taxpayer) to complete and submit the return and pay any tax owed. A conveyancing solicitor will often do it on the purchaser’s behalf within 30 days of the completion date. It’s also possible to send a return via the post and pay the Welsh Revenue Authority directly. Note that the seller has no responsibility.

How much is due will depend on whether the property is residential or non-residential (such as commercial or mixed-use buildings). If you are buying a second or cross-border property, the level of LTT may be higher.

Note that the following exemptions apply:

• The property has been inherited (as part of a will) and there was no payment for its transfer;
• The property is transferred after a divorce, legal separation or dissolution of a civil partnership;
• The freehold property is purchased for less than £40,000
• For leasehold properties, if the lease is new or assigned for 7 years or more.  The premium must be under £40,000 and the annual rent under £1,000;
• For leasehold properties, again only if the lease is new or assigned for 7 years or more, where the amount paid is less than the residential / non-residential LTT 0% band.

Is There First-Time Buyer Relief in Wales?

Unfortunately not.

There are, however, reliefs available in the following circumstances:

• Where more than one property is being purchased (multiple dwellings relief)
• Should the purchaser be a registered charity
• Where properties are transferred within a group structure.

It’s also worth noting that the 0% stamp duty threshold is £100,000 higher relative to England and Northern Ireland (and £80,000 higher relative to Scotland’s SDLT rates).

Higher Rate Land Transaction Tax

A higher or additional rate of LTT is due when you buy an additional property anywhere in Wales worth over £40,000 and you already own one or more homes.

These include:

• Any residential properties owned on behalf of any children under the age of 18;
• Any residential properties held within a trust.

The following rates apply:

Higher LTT Rate Exemptions

This elevated level of tax is not due on the following types of purchase:

• The property has commercial elements (such as a shop or office with a residential flat above);
• The property is not entirely static (such as a caravan, mobile home or houseboat);
• A freehold property that has an underlying lease with over 21 years remaining, held by some not connected with you.

Temporarily Owning 2 Properties at the Same Time

If you purchase a second property and still own your original home, in most cases you can apply for a refund once you sell.

Note that you will still need to pay the higher rate of LTT when buying a second property.  The refund will then be the difference between the higher and the standard rates.

Note that there will be no entitlement to a refund if a spouse or civil partners still owns part of the previous main home.

Multiple Dwellings Relief / Subsidiary Dwelling Exception

If a buyer is acquiring multiple properties simultaneously or a building that has two separate residential units (under separate titles), there may be an LTT relief which will reduce the overall tax burden.

If the sale involves 6 or more properties, the buyer can also opt to pay non-residential LTT rates – as highlighted in the next section.

Non-Residential and Mixed-Use LTT Rates

Non-residential property in Wales includes offices, shops / retail units, warehouses, industrial units, garages, factories, working farmland – i.e. often used for commercial (business) purposes.

Mixed-use properties are those that have residential and non-residential elements – more commonly a shop or office down below and flat above. Dentists, doctors surgeries and public houses are other examples of buildings that have  both residential and commercial aspects.

The Welsh Revenue Authority has its own rules regarding certain types of building / land and whether they would be classified as non-residential or not. Broadly, it comes down to whether the property is being used personally or for commercial purposes.

We would suggest speaking to a qualified accountant and/or tax advisor who can check the specific guidance.

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