For this month’s article helping paraplanners to tackle their exams in 2025, the Brand Financial Training team looks at how the Stamp Duty Land Tax works, with examples.
When we buy a residential property or land over a certain price in England and Northern Ireland, we have to pay Stamp Duty Land Tax (SDLT). It can be a very significant cost which will need to be factored into any budgeting exercise when looking at the overall expense of buying a house.
The tax is paid by the buyer and is worked out based on the value of the property or land. The thresholds vary depending on the price of the property and whether it’s a first purchase or not. It operates on a tiered structure meaning the rate paid depends on the price of the house. The tax is only applied to the portion of the price that falls within each of the bands.
SDLT is due within 14 days of completing a property purchase. The solicitor or conveyancer will usually handle the payment as part of their work ensuring it is paid on time.
Example
Jo and Adam are home movers and are buying a property in January 2025 with a value of £500,000.
They will pay 0% on the first £250,000 and 5% on the portion between £250,000 and £500,000. A total of £12,500.
If the purchase is delayed until after 1 April 2025, when the thresholds change, they will pay 0% on the first £125,000, then 2% on the next £125,000 with 5% on the portion between £250,000 and £500,000. A total of £15,000 will be due 14 days from completion.
First-time buyers
To encourage home ownership, first-time buyers benefit from reduced rates of SDLT. Currently a first-time buyer won’t pay SDLT on the first £425,000 but will be charged 5% on the amount between £425,000 and £625,000. If the price is over £625,000 then the relief cannot be claimed and the normal rates will apply.
This discount will change from 1 April 2025. From then first-time buyers purchasing a property under £500,000 won’t pay SDLT on the first £300,000 of the property price, and only pay 5% on the portion between £300,000 and £500,000. If the price is over £500,000 then the relief cannot be claimed and the normal rates will apply.
Example
Mark is a first-time buyer and purchases a property for £500,000 in May 2025. He will pay 0% on the first £300,000 and 5% on the portion between £300,000 and £500,000. A total of £10,000.
Additional Properties
Buyers purchasing additional properties (over £40,000), such as a second home or a buy-to-let investment, will be subject to higher SDLT rates. An extra 5% surcharge applies on top of the standard SDLT rates.
A buy-to-let property bought for £250,000 in January 2025 will face a tax rate of 5% (up to £250,000 is charged at 5%).
From 1 April 2025, the charge will be 5% on the first £125,000, with the next £125,000 charged at 7%.
Also it’s worth knowing that under the rules, married couples and civil partners are treated as a single unit for SDLT purposes to prevent them from splitting ownership or purchasing properties individually to avoid the higher rates.
This means that if one partner already owns a residential property, and the other partner buys a new one, the new property is treated as an “additional” property for the couple as a whole, even if only one partner is listed on the purchase.
Replacing a main residence
If someone sells their main residence and buys another one then it’s a straightforward case of paying the normal rates of SDLT on the new property purchase.
Even if someone owns a buy-to-let property and they have sold their main residence to buy another main home, then the normal rates of SDLT will still apply on the new property purchase. This is because the main residence has been replaced the higher rates do not apply.
If a main residence is being replaced but the previous one has not been sold yet, the higher SDLT rates will be charged as in this scenario an additional residential property will be owned. However, if the previous residence is sold within three years a refund of the surcharge can be claimed.
HMRC must receive the request for a refund by either 12 months after the date of sale or 12 months after the filing date of the SDLT return for the new main home (whichever date is later). This can be done either online or by filling in SDLT16.
Conclusion
SDLT is a crucial element of the UK property market, but it can be a complex tax to navigate with the cost significantly adding to the overall expense of buying a property, especially in high-value areas.
Understanding the different scenarios in which SDLT is payable is crucial for property buyers, especially those owning more than one. However, careful planning and awareness of the timing of sales can help manage the tax liability.
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