WHAT IS STAMP DUTY?

Today’s article looks at the increasingly costly property transaction tax in the UK which the government has been using as a fundraising tool for many years.

Originally introduced in 1694 to pay for the war against France, the tax imposition was only supposed to last four years.

But as with many other taxes, once introduced governments become addicted to the revenues raised.

Stamp Duty was at first literally a stamp on the documents of sale and was charged as a fixed fee. It became so popular as a way of getting money into the government’s coffers that pretty soon there were stamp duty taxes on everything from hair powder to newspapers to hats and gloves, and to playing cards and dice. In the financial year 1702/1703 almost four millions stamps were embossed onto papers for a revenue approaching ￡100,000, which back in the day was a sizable wedge. I learn from a handy calculator at the National Archive website that I could have bought 24 thousand cows or paid for over a million days’ work from skilled tradesmen. It would be worth over ten billion in today’s money.

The government raised over 15 billion pounds from Stamp Duty in the year 2022/2023. It is hard for them to turn down that kind of money, although many make the point that it is a tax on moving and doesn’t help the North/South divide in the UK as it substantially increases the cost of buying a house in the expensive districts in London and the Southeast.

But back to the tax. From 1808, the property tax became proportionate to the value of the sale. By 1997 it was levied at 1% of the value of a property over ￡60,000. But then a new banded system was introduced by the then Chancellor of the Exchequer, Gordon Brown.

Rates have changed and successive chancellors have moved the bands up and charged higher amounts on more expensive properties as well as different rates for different types of buyers. First time buyers are charged less than home movers. Second homeowners are charged more as are non-UK residents or people living abroad at the time of purchase.

The full and latest details are always available on the UK government website at

https://www.gov.uk/stamp-duty-land-tax/print

A quick peek at this website will also revel the further complication that since the devolution of powers to the various National Assemblies, different rates are applied in different parts of the country.

In Scotland, the tax is called Land and Building Transaction Tax1, and in Wales it is called Land Transaction Tax2 (or at least it has been since 1st April 2018).

Here, we are just going to look at how the banding system in England works …

If a property is worth:

• less than ￡250,000 you pay no tax
• from ￡250,001 to ￡925,000 you pay 5% of the amount above ￡250,000
• from ￡925,001 to ￡1.5 million the rate is 10%
• and anything above 1.5 million is taxed at 12%

If the property is a second home, there is an extra 3% surcharge on the purchase.

However, if you are a first-time buyer, you will pay

• no SDLT up to ￡425,000
• 5% SDLT on the portion from ￡425,001 to ￡625,000

All the above assumes that you are resident in the UK, which means spending at least 183 days in the UK in the 12 months before the purchase completes. If you don’t qualify as a resident, then the tax is surcharged at an extra 2%. On the government website there is an SDLT calculator, and you can put in all your individual circumstances to work out how much tax you will have to pay.

Here's an example of a purchase of a ￡1,500,101 freehold residential property being purchased by a non-UK-resident individual who already owns a property in the UK and is not replacing their main residence. It, therefore, includes both the second home and non resident surcharges of 2% and 3% respectively.

This is a breakdown of how the total amount of SDLT is calculated

Purchase price bands (￡) Percentage rate (%) SDLT due (￡)

Up to 250,000 5 12,500

Above 250,000 and up to 925,000 10 67,500

This is a breakdown of how the total amount of SDLT is calculated

Purchase price bands(￡) Percentage rate (%) SDLT due (￡)

Above 925,000 and up to 1,500,000 15 86,250

Above 1,500,000+ 17 17

Total SDLT due 166,267

As you can see this is a fair chunk of change and has led to many asking if there are ways to reduce this bill.

The short answer is not easily. They have 14 days from the completion of a purchase to file an SDLT return and pay the tax due. Usually, your solicitor or conveyancer will have informed you of the liability prior to completion and they will also file the return to HMRC (His majesty’s Revenue and Customs) on your behalf.

There are some avenues to explore to mitigate the tax, but often this will be done as a claim for tax relief after the event.

Typically, non-residential properties pay lower rates. Non-residential properties includes:

• commercial property, for example shops or offices
• property that isn’t suitable to be lived in
• forests
• agricultural land that’s part of a working farm or used for agricultural reasons
• any other land or property that is not part of a dwelling’s garden or grounds
• 6 or more residential properties bought in a single transaction.

These are taxed at zero % up to ￡150k, 2% on the next ￡100k and 5% on anything above ￡250k.

This is an increasingly complex tax, and it is best to seek advice from a professional before purchase. Mistakes can be expensive, and the rates and exemptions are constantly changing.

It makes you want to turn the clock back to 1694 and pay a fixed fee for stamping your purchase documents to pay for a war against France, which, for a lot of English people, is always a good idea.