How will the new stamp duty rates affect you?

Published on 20.10.22
Published on 20.10.22

One of the tax changes (not yet reversed) in the mini-budget was cutting the existing Stamp Duty Land Tax (SDLT) rates, effective immediately. Elisa Rovelli examines the changes.

From 23 September 2022, buyers have been able to take advantage of new lower rates of SDLT.

The new threshold for SDLT is £250,000 on all residential properties. This threshold will be affected by:

  • whether you are a first-time buyer
  • if you are purchasing an additional home
  • if you are buying as an overseas purchaser.

First-time buyers

First-time buyers were previously entitled to SDLT relief on the first £300,000 of their purchase price (assuming they were buying for £500,000 or less). Now, first-time buyers will not have to pay SDLT on the first £425,000 (assuming they are buying for £625,000 or less).

Example:

Buyer A bought a flat in May 2022 for £420,000. Based on the old rates, Buyer A was liable for £6,000 of SDLT. This is because first-time buyers had to pay SDLT at the rate of 5% on any portion of the purchase price over £300,000.

Buyer B also buys a flat for £420,000, but in October 2022. Buyer B will not have to pay any SDLT as a first-time buyer.

First-time buyers will additionally only pay 5% SDLT on the portion of the purchase price between £425,001 and £625,000. This rate only applies when the total purchase price is £625,000 and under.

Example:

Buyer A bought a house in June 2022 for £620,000. Based on the old rates of SDLT, Buyer A would have had to pay £21,000 as a first-time buyer.

This is because Buyer A had to pay 2% on any portion of the price between £125,000 and £250,000 (as the old SDLT threshold was £125,000) and 5% on any portion of the price between £250,000 and £925,000.

Buyer B buys a house in October 2022 for £620,000. Based on the new rates, Buyer B will have to pay £9,750 as a first-time buyer.

This is because a first-time buyer in Buyer B’s position only needs to pay 5% SDLT on the portion of the purchase price over £425,000.

Additional homes

Buyers purchasing second homes or buy-to-let properties will also benefit from the reduction in SDLT.

As the threshold of £425,000 only applies to first-time buyers, any additional properties will have an SDLT threshold of £250,000.

As with the old rates of SDLT, additional properties are subject to a 3% higher rate of SDLT. This 3% is in addition to any SDLT rate payable on the purchase.

Example:

Buyer A bought an investment flat in July 2022 for £700,000. Buyer A already owns a home. Buyer A would have had to pay £46,000 of SDLT.

This is because Buyer B has to pay 3% in addition to the 2% on any portion of the price between £125,000 and £250,000 and 5% on any portion of the price between £250,000 and £925,000.

Buyer B, therefore, has to pay 3% up to £125,000 (instead of 0%), 5% on any portion of the price between £125,000 and £250,000 (instead of 2%), and 8% on any portion of the price between £250,000 and £925,000 (instead of 5%).

Buyer B also buys an investment flat for £700,000 while already owning a home. However, Buyer B completes the purchase in October 2022. Buyer B will have to pay SDLT of £43,500.

This is because, with the new rates, the 2% rate bracket essentially no longer exists. So, Buyer B will be paying SDLT of 3% on the portion under the SDLT threshold (which is now £250,000 rather than £125,000) and 8% (i.e. 3% rather than 5% because this is an additional property) on the portion of the price between £250,000 and £925,000.

Companies v individuals

As with the old rates, companies purchasing a property will have to pay the higher rates of SDLT applicable to additional properties, even if no other properties are owned in that company’s name.

For purchases of £500,000 and under, a company will pay SDLT at the same rates as an individual purchaser buying an additional property. As with the old rates, if a company purchases a residential property for more than £500,000, they will pay a 15% rate of SDLT unless any exemptions apply.

Non-residential property rates

Different rates of SDLT apply to non-residential or mixed-use properties. The SDLT threshold for non-residential and mixed-use properties has not been amended and is still £150,000.

Non-UK residents

The government advises that if you’re not present in the UK for at least 183 days during the 12 months before your purchase, you are not a UK resident for the purposes of SDLT.

Non-UK residents are still liable to pay the 2% surcharge applicable to overseas purchasers. This surcharge still applies to both individuals and companies. The 2% surcharge applies regardless of whether you are a first-time buyer or are buying an additional or buy-to-let property.

Summary of the new rates for individuals

Proportion of price First-time buyer (buying for £625,000 and under) First-time buyer (buying for over £625,000) Buyer who owns other property Overseas buyer (first-time buying for £625,000 and under) Overseas buyer (first-time buying for over £625,000) Overseas buyer (who owns other property)
£0 – £250,000 0% 0% 3% 2% 2% 5%
£250,001 – £425,000 0% 5% 8% 2% 7% 10%
£425,001 – £925,000 5% 5% 8% 7% 7% 10%
£925,001 – £1.5 million N/A 10% 13% N/A 12% 15%
Over £1.5 million N/A 12% 15% N/A 14% 17%

The SDLT payable on a transaction will also be affected by any reliefs available in specific circumstances.

Additional SDLT can also be payable on some new leases, depending on how much the yearly rent is.

The new rates of SDLT do not apply to properties located in Wales.

If you require further information on this article, please contact Elisa Rovelli at [email protected].

Disclaimer: The above is merely general guidance and should not be relied on as formal advice. We suggest you take professional advice before taking any action in relation to the issues discussed above.