Making the most of SDLT rates

Making the most of SDLT rates

Since stamp duty was replaced by stamp duty land tax in 2003, when the top rate of SDLT was just 4 per cent (regardless of whether residential or commercial/mixed use), there have been so many changes to the rates of SDLT and the various reliefs that can be claimed, that it is not always clear exactly how much SDLT is payable.

‘How much SDLT will I have to pay?’ is now usually the first question that solicitors are asked by their clients who are purchasing properties. 

It was in 2011 that we first saw different rates applying for residential on the one hand and commercial and mixed use on the other hand.

The first seismic change was in March 2012 when we saw the introduction of a new SDLT rate regime for companies and other non-natural purchasers with the flat rate of 15 per cent for ‘mansions’, that is, properties over £2m. This was accompanied by a 7 per cent SDLT rate for individuals buying mansions. 

These rules were quickly followed by the introduction of the annual tax on enveloped dwellings in April 2013.

Key Points

  • It is not always clear how much stamp duty land tax people should be paying
  • The pandemic has seen the arrival of a stamp duty holiday for some properties
  • It is important to get one's transaction completed before the next deadline

Another major change came in 2014 when SDLT was changed from being a single percentage based on the total purchase price of the property, to an incremental system with set bands and a set percentage applied to each band (with a top band of 12 per cent for purchases over £1,500,000).

The next big change came in 2016 when a whole new set of rates were introduced, commonly referred to as ‘the higher rates’ for additional dwellings, which applies to purchasers who already own residential property elsewhere in the world. The top rate payable was increased to 15 per cent.

In both cases the changes resulted in a mad dash by buyers to try to exchange the contracts on their property purchases before the rates changed, with thousands of contracts being exchanged just before midnight on the last day. 

Not all purchasers were able to manage to exchange contracts before the change and many found themselves having to pay considerably more SDLT than anticipated when they began the process of buying their new property.  

Property or lease premium or transfer valueSDLT rate
Up to £500,000Zero
The next £425,000 (the portion from £500,001 to £925,000)5%
The next £575,000 (the portion from £925,001 to £1.5m)10%
The remaining amount (the portion above £1.5m)12%

Government data; valid up to March 31 2021

For some, the increase was too much and they had to withdraw from their purchases. Some managed to agree with the seller to share the additional unexpected charge in order to keep the property chain together and some sellers who did not want to lose their buyers agreed to reduce the price to nullify the additional SDLT charge on their buyers.       

The increase in SDLT rates has for many people become a financial hindrance to moving up the property ladder and there has, particularly since the new higher rates were introduced, been calls for the SDLT regime to be reviewed and rates reduced to revive what became a rather stagnated market as a result of Brexit and the surrounding uncertainty and the introduction of the higher rates. 

Market kickstart

With the arrival of the pandemic and the end of the first national lockdown, a much-awaited SDLT reduction has been introduced – although only for a fairly short period of time as it expires on March 31 2021.