Q: I am currently in the process of buying a house and understand that changes have been made to Stamp Duty Land Tax, is this correct?
A: Stamp Duty Land Tax is payable when you buy a home in the United Kingdom and the purchase price is greater than £125,000. It does not matter whether you intend to live in the property or not.
The new rules introduced by HMRC for residential property started on 4 December 2014. Previously, where the property cost more than £125,000, SDLT was charged at a single rate for the entire price.
The old rates were:
* Between £0 and £125,000 – no SDLT due
* Between £125,001 and £250,000 – 1 per cent
* Between £250,001 and £500,000 – 3 per cent
* Between £500,001 and £1,000,000 – 4 per cent
* Between £1,000,001 and £2,000,000 – 5 per cent
* Above £2,000,000 – 7 per cent
Since 4 December, however, you only pay the rate of tax on the part of the property price that falls within each band.
The new SDLT rates are:
* Between £0 and £125,000 – no SDLT due
* Between £125,001 and £250,000 – 2 per cent
* Between £250,001 and £925,000 – 5 per cent
* Between £925,001 and £1,500,000 – 10 per cent
* Above £1,500,000 – 12 per cent
Under the old rules if a house cost £175,000, SDLT at a rate of 1 per cent on the full amount would have been payable, a total of £1,750. Under the new rules, for the same purchase price, no tax is payable on the first £125,000 and on the remaining £50,000 a rate of 2 per cent is payable, the resulting tax due being £1,000. On a purchase of £325,000, under the old rules the tax payable would have been £9,750. Under the new rules there would be no tax payable on the first £125,000, then 2 per cent on the next £125,000 and 5 per cent on the remaining £75,000; the total due being £6,250.
The new SDLT rules are used when the exchange and completion on a home took place on or after 4 December 2014.
If you exchanged on the property before 4 December 2014, but have not yet completed, there is a choice of whether to use the old or new rules. Less tax will be payable in most cases under the new rules.
HMRC has an online calculator that can be used to help you work out how much SDLT will be due under the new rules. The web address is www.hmrc.gov.uk/tools/sdlt/land-and-property.htm
The way SDLT is paid has not changed. A stamp duty return is submitted with payment due within 30 days of completing the property purchase. Unless the price is less than £40,000 a return has to be submitted even if no SDLT is due.
Note that in Scotland the new rates will apply until 1 April 2015 when the Land and Buildings Transaction Tax replaces stamp duty in that country.
Ben Chaplin is managing director of Taxwise
