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SDLT and first-time buyers

Adrian Mooy - Friday, February 21, 2020
 
Stamp duty land tax (SDLT) is payable on the purchase of land or property in England or Northern Ireland where the consideration is more than the relevant threshold. SDLT is a devolved tax and does not apply to property transactions in Scotland and Wales to which land and buildings transaction tax (LBTT) and land transaction tax (LTT) apply respectively. While these are similar to SDLT, the rules are not identical. This article focusses on SDLT as it applies to land and property transactions in England and Northern Ireland.

 

Nature of SDLT

 

SDLT is payable on residential and non-residential land and property, with different rates applying to residential and non-residential transactions. SDLT is payable when a person:

 

 - buys a freehold property;
 - buys a new or existing leasehold;
 - buys a property through a shared ownership scheme; or
 - is transferred land and property in exchange for a payment (such as taking on a mortgage or buying a share in a house).

 

Residential Property

 

SDLT is payable on purchases of land and property in excess of the residential SDLT threshold. This is set at £125,000. Different rates apply to different ‘slices’ of the consideration above the SDLT threshold. The residential rates at the time of writing are as follows:

 

Consideration     Rate
Up to £125,000   0%
Next £125,000    2%
Next £675,000    5%
Next £575,000    10%
Remainder          12%

 

HMRC have produced a calculator that can be used to work out the SDLT payable on the purchase of residential property. The rules and rates are different for first-time buyers and on second and subsequent properties.

 

Leasehold property

 

The residential rates above apply to the purchase price of the lease (the lease premium) on the purchase of new residential leasehold property. Further, if the net present value of the rent is more than £125,000, SDLT is payable on the portion over £125,000 at a rate of 1% unless the purchase is of an existing (assigned) lease.

 

Second and subsequent properties

 

Higher SDLT rates apply to the purchase of second and subsequent residential properties. Such properties attract a supplement of 3% on top of the purchase price where the price of the second property is more than £40,000. The rates on second homes costing more than £40,000 are as follows:

 

Consideration     Rate

 

Up to £125,000   3%

Next £125,000    5%
Next £675,000    8%
Next £575,000    13%
Remainder          13%

 

First-time buyers

 

To help first-time buyers buy their first home, SDLT reliefs are available for first-time buyers. The savings can be great, but the relief is limited and its availability depends on the price of the property. First-time buyers do not pay any SDLT if they buy a property that cost no more than £300,000; where the purchase price is between £300,000 and £500,000, first-time buyer relief reduces the amount of SDLT payable - no SDLT is payable on the first £300,000 and SDLT on the portion between £300,000 and £500,000 is payable at a rate of 5%. First-time buyers who buy a property costing more than £500,000 pay the normal residential SDLT rates - there is no first-time buyer relief if consideration exceeds £500,000. A first-time buyer is an individual or individuals who have never owned an interest in a residential property in the UK or elsewhere in the world and who intend to occupy the property as their main home. It is not available to someone buying a property to let out, even if they have never owned a property before. First-time buyer relief must be claimed in the SDLT return. The relief is worth up to £5,000.

 

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