When you buy a residential property in England and Wales over a certain price you have to pay stamp duty.

In Scotland, Land and Buildings Transaction Tax replaced stamp duty on 1 st April 2015.

In December 2014 the way stamp duty in England and Wales is calculated changed, making it cheaper for 98% of people who pay it.

• Under the old rules, buyers paid tax at a single rate on the entire property price.
• Now you only pay the rate of tax on the part of the property price within each tax band – like income tax.

From April 2016 buy to let and second home buyers will have to pay a 3% surcharge on each stamp duty band.

Stamp duty rates in England and Wales for residential property:

Purchase price under £125,000
No stamp duty is charged on properties under £125,000. Purchase price between £125,001 and £250,000 Buyers don’t pay stamp duty on the first £125,000, however they pay 2% on the remainder of the property price up to £250,000.

Purchase price between £250,001 and £925,000
Buyers don’t pay stamp duty on the first £125,000; they pay 2% on the portion of the price between £125,001 and £250,000; then they pay 5% on the portion of the price over £250,001.

Purchase price between £925,001 and £1.5m
Buyers don’t pay stamp duty on the first £125,000; they pay 2% on the portion of the price between £125,001 and £250,000; then they pay 5% on the portion of the price between £250,001 and £925,000; and 10% on the portion between £925,001 and £1.5 million.

Purchase price over £1.5m
Buyers don’t pay stamp duty on the first £125,000; they pay 2% on the portion of the price between £125,001 and £250,000; then they pay 5% on the portion of the price between £250,001 and £925,000; 10% on the portion between £925,001 and £1.5 million; and 12% on the portion over £1.5 million.

From the 1st April 2016 anyone purchasing a property in addition to their main home will pay an additional 3% SDLT for the first £125,000 and 5% instead of 2% on the portion between £125,001 and £250,000 and 8% on the amount above £250,001.

For example, if you bought a buy to let property after 1st April, 2016 for £350,000 you would pay 3% on the first £125,000, 5% on £125,001 - £250,000 and 8% on the portion that falls above £250,001.

How to check if a purchase of a property by an individual is liable for the higher rates

What if I own a property abroad and buy a second property in the UK?

Property buyers who own and reside in a property abroad i.e. France but intend to purchase a second property in the UK are eligible to pay the new SDLT rates. The definition of "main residence" will be based on fact (where you live) rather than subject to election, which differs from other taxes.

Are any types of properties exempt from this tax?

Yes. Caravans, houseboats, mobile homes and properties under £40,000 are exempt from the higher rate of SDLT. The consultation says, 'Transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates.'

Potential exemptions

Married couples and civil partners

The consultation states that 'the government will treat married couples and civil partners living together as one unit'. As such, married couples and civil partners who own one property at the end of the day of a transaction will not pay the higher rates of SDLT. However, if either of them owns more than one residential property both may pay the higher rates when purchasing another property.

Couples who are separated will be treated as “separate entities” in terms of property ownership

Purchasing a property for children

The Treasury outlines different structures of property transaction. If parents purchase a property for their children in their name and already own their home, they are eligible to pay higher SDLT as they will own two properties. However, if parents gift money towards a deposit but do not jointly own the property with their child, higher SDLT does not apply.

Multiple purchases

Large-scale investors will be liable for the additional charge. In the consultation document published after the initial announcement in November 2015, there was an indication that investors buying more than 15 units, or who had a portfolio of more than 15 units, could be exempted from the charge, but the Chancellor decided against this.

For more information on proposed Stamp Duty changes on second properties please speak to one of our property experts at Richmond Holmes.