Calculating the stamp tax on UK residential property | MHA Carpenter Box

Calculating the stamp tax on UK residential property

It is well known that “stamp taxes” are a significant cost in many property purchases. When the property market is buoyant, so too are tax receipts from stamp taxes.

In 2017/18, HMRC collected 10% more Stamp Duty Land Tax (SDLT) in England, 24% more in Wales and 10% more in Northern Ireland compared to 2016/17. However, one of the key aspects that purchasers now need to be aware of is that the amount of tax which you will pay for a residential property purchase now depends on the region that you are purchasing the property in.

In England and Northern Ireland, SDLT still exists and applies. However, in Scotland, since 1 April 2015, SDLT has been superseded by Land & Buildings Transaction Tax (LBTT). In Wales, since 1 April 2018, SDLT has been superseded by the Land Transactions Tax (LTT). The key point with the devolution of stamp duties on properties within the UK is that in Scotland and Wales, the rates of stamp taxes on properties are now different from those in England and Northern Ireland.

Stamp taxes are payable on a property based on where the property is situated, not where the buyer is resident. This means that the cost of stamp taxes payable will differ depending on the location of the property itself, as well as the nature of the property acquired. In each of the jurisdictions, the level of stamp duty payable will also depend upon:

  • Is the property residential or nonresidential in nature? The rates of stamp taxes in each jurisdiction are different for residential, and nonresidential property.
  • Will the property be acquired by an individual person or by a company? Each jurisdiction charges higher rates for acquisitions which are not by an individual (e.g. by a company).
  • Will the property be the person’s main home or will it be an additional residential property (i.e. will it be a buy to let property)? Each jurisdiction charges higher stamp taxes for “second homes” or buy to let properties.
  • Will the property be the person’s first purchase as their main home (i.e. are they a first-time buyer)? There are lower rates for First Time Buyers in England, Northern Ireland and Scotland, but not Wales.

Stamp Duty Land Tax in England and Northern Ireland

In England and Northern Ireland, the current bands of SDLT for a (non-first time buyer) purchaser of a house where the purchaser intends to use the property as their main residence, are as follows:

Land & Buildings Transaction Tax in Scotland

In Scotland, the equivalent bands for a purchaser of a property where the (non first-time buyer) purchaser intends to use the property as their main residence will be as follows:

Land Transaction Tax in Wales

In Wales, the equivalent bands for a purchaser of a property where the (non first-time buyer) purchaser intends to use the property as their main residence will be as follows:

The key point is that the amount of stamp taxes payable differ based on the location of the property.

For example, a purchaser (who is not a first-time buyer) who is buying the freehold of a house for £500,000 as their main residence will pay the following in stamp taxes:

  • England and Northern Ireland – £15,000
  • Scotland – £23,350
  • Wales – £17,450

Charges for Additional Properties

Each of the jurisdictions also has higher stamp tax charges for persons who are buying properties which would be classed as “second” or “additional” properties i.e. the properties will not be used as the persons main residence as they already own, or have an interest in, a property which is their main residence.

In England, Northern Ireland and Wales, for “additional” properties such as buy to let properties, the stamp taxes in the relevant bands of value of the properties acquired are 3% higher than those for properties where the purchaser will use the property as their main residence. In Scotland, the additional tax payable in each band is 4% higher.

Therefore, for example, a person who is buying the freehold of a single buy-to-let property worth £500,000 (assuming they already own a main residence of their own) will suffer the following in stamp taxes on the transaction:

  • England and Northern Ireland – £30,000
  • Scotland – £43,350
  • Wales – £32,450

In each of the jurisdictions, residential properties which are acquired by companies rather than individuals are subjected to stamp taxes at the “additional” rates. This is essentially due to those properties being automatically deemed as properties which will not be used as the buyer’s main residence (logically a company cannot use the property as its main residence).

First Time Buyers

England, Northern Ireland and Scotland have reduced stamp taxes for first-time buyers, but Wales does not. This is because the Welsh Government do not believe that many transactions involving first-time buyers will, in fact, be caught by Land Transaction Tax, as there are few first-time buyer transactions where the property price exceeds their £nil band of £180,000.

In England and Northern Ireland, the first time buyer rates of Stamp Duty Land Tax are as follows:

  • Value up to £300,000 – Nil
  • £300,001 to £500,000 – 5%
  • Over £500,000 – Standard rates apply

In Scotland the corresponding rates are as follows:

  • Value up to £175,000 – Nil
  • Over £175,000 – Standard rates apply

In Wales the corresponding rates are as follows:

  • Value up to £180,000 – Nil (Note: this is the standard rate)
  • Over £180,000 – Standard rates apply

Therefore, for a first-time buyer of a residential property costing £250,000, the stamp duty cost in each jurisdiction is as follows:

  • England and Northern Ireland – £0
  • Scotland – £1,500
  • Wales – £2,450

As you will have seen from this article, there are now significant differences in the stamp taxes payable in different parts of the UK and so residential property buyers should calculate their stamp duty costs carefully before committing to a property purchase.

Read more in issue 12 of our construction and real estate newsletter series.

Read Real Estate Matters Issue 12

If you would like to discuss property taxes with us in more detail, please contact our team on 01903 234094.