The Spring Budget reaffirmed the Conservative Party’s commitment to favourable taxation. Chancellor Jeremy Hunt announced zero changes to inheritance tax (IHT) until April 6, 2025, at the very earliest. Capital Gains Tax (CGT) exemption is also set to reduce to £3,000 from April 2024.
But, arguably, that wasn’t the biggest benefit for people on, or looking to climb the property ladder. Mr. Hunt stated that the standard nil-rate Stamp Duty Land Tax threshold for England and Northern Ireland will remain in place until March 31, 2025, for everyone, from first-time buyers to seasoned homeowners and property investors.
These conditions further bolster the Government’s SDLT cut, first announced on 23rd September 2022 which reduced the upfront costs of moving home whilst supporting those wanting to get on the housing ladder. The temporary measure increased the nil-rate tax threshold from £125,000 to £250,000 for those already on the housing ladder and increased the nil-rate threshold for First Time Buyers’ Relief from £300,000 to £425,000.
It’s clear that the Government intends to loosen financial restrictions when buying a main residence, making it easier for qualifying buyers to own a home, and accumulate wealth.
Below is everything that you need to know about Stamp Duty Land Tax for a smoother property purchase, from a standard definition of the tax to stamp duty liabilities when buying a second home or buy-to-let property and cost mitigation strategies that’ll potentially save you some money.
Stamp Duty in a Nutshell
Stamp duty (SDLT) is a tax that everyone in England and Northern Ireland must pay when the buy a residential or commercial property or a piece of land.
Anyone buying a property in Scotland or Wales is subject to different taxes. In Scotland, people must pay the Land and Buildings Transaction Tax (LBTT.) In Wales, people must pay the Wales Land Transaction Tax (LTT.) Although denoted under a different name, LBTT and LTT both serve the same function as Stamp Duty.
As of 2024, there are three distinct tax thresholds which, once exceeded, act as a benchmark when calculating stamp duty liability. These are:
- £250,000 for residential properties
- £425,000 for residential properties bought by first-time buyers where the value of the property does not exceed £625,000
- £150,000 for non-residential land and properties
The amount of stamp duty a buyer is liable for depends on several factors. These include:
- If you’re a first-time buyer
- If you’re already a property owner
- If you’re a non-UK resident
The circumstances of the property purchase, for example, if you’re helping your son or daughter to buy their first home
Second Home and Buy-to-Let Stamp Duty Costs
If you buy a property additional to the one or more that you already own you’ll be liable to pay a higher stamp duty land tax rate. This includes a holiday home, properties bought as an investment and any properties to expand your portfolio.
In England and Northern Ireland, the higher stamp duty rate is equivalent to 3%. For example, if you were buying a second home for £300,000, you’d have to pay £11,500 in stamp duty costs whereas if you were a first-time buyer, or if the property you were buying was your only one, you’d only be liable to pay £2,500, as calculated at the standard nil-rate threshold.
In Scotland, the higher stamp duty rate is equivalent to 6%. So, as per the previous example, if you’re buying a second home for £300,000, you’d be liable for £22,600 in stamp duty costs. If you’re a first-time buyer, or if the property was your only one, you’d only pay £4,600.
In Wales, the higher stamp duty rate is equivalent to 4%. Therefore, using the same example – a property valued at £300,00 – you’d be liable for £16,950, compared to the £4,500 if the purchase was your only property.
However, any first-time buyer intending to rent out a buy-to-let property won’t be liable to pay the higher rate. However, they also won’t qualify for first-time buyer stamp duty relief.
How to Mitigate Significant Stamp Duty Costs
For most, buying a home is the most expensive purchase that they’ll ever make. Unless your purchase falls below the standard nil-rate threshold, paying stamp duty is unavoidable. However, there are ways that buyers can mitigate significant stamp duty liabilities.
Be sure to read below to uncover a handful of strategies to mitigate significant stamp duty costs, that both first-time buyers and seasoned property owners can take advantage of.
Make the Right Offer
A property listing price is really just a guide. Sellers will list properties at a somewhat inflated price in the hope of achieving a figure as close to it as possible. This means that any potential buyers have to be open to negotiation. They should have a strategy. One that’s paramount when calculating stamp duty costs of all residential and commercial properties listed above the nil-rate threshold. Convince a seller to accept a reduced price and you can reduce your stamp duty bill.
Of course, this strategy can be risky. Especially if you’re intending to buy a property in an especially desirable area. Make an offer that’s too low and sellers will, likely, outright reject it. Another buyer may trump your offer. A bidding war could be sparked, pushing the price above what you’re comfortable with. Make a shrewd offer and you stand a better chance of it being accepted whilst mitigating or minimising stamp duty.
Some Developers Offer Discounts on New Builds
Developers will want to sell their properties. Ideally, as quickly as possible. To do this, some developers offer new build properties at a discounted price. They may even offer to pay your stamp duty as part of any deal to buy one of their properties.
This can save you a substantial amount of money, especially if you’re buying an expensive residential and commercial property. Of course, this is only applicable if you’re buying a property above the Stamp Duty Land Tax nil-rate.
Property Transfer
People fortunate enough to have been gifted a property in someone else’s will do not have to pay stamp duty on its market value, provided that the property deeds have been transferred to you.
However, there are caveats to this. If you and another party have inherited a property. For example, if two children have been left their parents property in a will and there are still mortgage payments to be made, the person paying the mortgage will be responsible for any stamp duty liability in the event that the property is sold.
Mortgage Booster, Dynamic Income Boost and Deposit Loan
If you want to buy a house with your partner but only one of you is a first-time buyer, the pair of you won’t be eligible for first-time buyer stamp duty relief. However, this can be circumvented if one of you has a mortgage income booster.
An Income Boost helps first-time buyers to get on the property ladder by adding a friend or family member to their application. This has proven popular with single people who are looking to buy their first home with their parents help. Additionally, when calculating stamp duty, couples can leverage an Income Boost to reduce their stamp duty bill, without including another party on their mortgage application.
Basically, the second-time buyer acts as a guarantor (first-time buyer’s Booster.) So, technically, the property is bought by one party with the help of another. The “mortgage Booster” will be named on the mortgage, but NOT on the property deeds. This is because the Booster wouldn’t need to contribute to the monthly payments or house deposit, unless the second-time buyer needed help. Remember, the Booster will not legally be a co-owner of the property or have an equity stake in the home.
However, this isn’t the only option for homeowners and their partners, family or friends who want to buy a home. The alternatives may be more attractive to people who wish to have an equity stake in the home, or who wish to be co-owners. We’ve outlined these below:
The Dynamic Income Boost works the same way as an Income Boost with one significant deviation. The Booster will contribute monthly mortgage payments in exchange for equity in the home. All contributions are tracked. Therefore, when it’s time to sell the home, the amount of equity in the home is clear.
The other option is a Deposit Loan. This involves either a friend or family member contributing to the deposit in exchange for a share of the property. This can be either an interest-free loan, repaid once the property is sold, or an equity loan which states that a third-party owns a percentage of the property. With a Deposit Loan, a third-party is not classified as a joint owner and therefore any first-time SDLT potential savings are still applicable.
Why Choose Ward Goodman to Help with Your SDLT?
Ward Goodman can offer expert financial advice and guidance across a broad range of financial liabilities. This includes any stamp duty payments for first-time buyers and seasoned homeowners and strategies to mitigate your stamp duty liability costs.
Our intricate knowledge and significant experience helping clients to navigate stamp duty’s complex regulations with optimal tax strategies, including managing stamp duty return filings to minimise significant tax liability whilst making sure that the process is handled efficiently.
A comprehensive knowledge of stamp duty law and financial acumen means that we can identify opportunities to minimise buyer fees. This will save buyers money whilst maximising investment returns.
We make SLDT filing simple and straightforward, taking any strain of you and making the whole buying process smoother whilst making sure that the purchase complies 100% with all requisite tax regulations.
Optimising stamp duty liability on all residential and commercial property purchases is just one of the many services that Ward Goodman provide for our clients. If you’re interested in learning more about our Tax Planning services, including Capital Gains or Inheritance Tax or our Business Services, such as Business Tax and Payroll services, be sure to contact us today.
