Planning on Buying Residential Property? Check the Postcode Before you Calculate the Stamp Duty

It is well known that “stamp taxes” are a significant cost in many property purchases. When the property market is buoyant, so too are tax receipts from stamp taxes. In 2017/18, HMRC collected 10% more Stamp Duty Land Tax (SDLT) in England, 24% more in Wales and 10% more in Northern Ireland compared to 2016/17. More than one third of all stamp taxes payable on property transactions across the UK as a whole arose from property transactions situated in London. However, one of the key aspects that purchasers now need to be aware of is that the amount of tax which you will pay for a residential property purchase now depends on the region that you are purchasing the property in. In fact, the stamp taxes will differ on both residential and commercial property, but this article focuses on the residential aspects.

In England and Northern Ireland, SDLT still exists and applies. However, in Scotland, since 1 April 2015, SDLT has been superseded by Land & Buildings Transaction Tax (LBTT). In Wales, since 1 April 2018, SDLT has been superseded by the Land Transactions Tax (LTT). The key point with the devolution of stamp duties on properties within the UK is that in Scotland and Wales, the rates of stamp taxes on properties are now different to those in England and Northern Ireland.

Stamp taxes are payable on property based on where the property is situated, not where the buyer is resident. This means that the cost of stamp taxes payable will differ depending on the location of the property itself, as well as the nature of the property acquired. In each of the jurisdictions, the level of stamp duty payable will also depend upon:

  • Is the property residential or nonresidential in nature? The rates of stamp taxes in each jurisdiction are different for residential, and nonresidential property.
  • Will the property be acquired by an individual person or by a company? Each jurisdiction charges higher rates for acquisitions which are not by an individual (e.g. by a company).
  • Will the property be the person’s main home or will it be an additional residential property (i.e. will it be a buy to let property)? Each jurisdiction charges higher stamp taxes for “second homes” or buy to let properties.
  • Will the property be the person’s first purchase as their main home (i.e. are they a first time buyer)? There are lower rates for First Time Buyers in England, Northern Ireland and Scotland, but not Wales.

For example, in England and Northern Ireland, the current bands of SDLT for a (non first time buyer) purchaser of a house where the purchaser intends to use the property as their main residence, will be as follows:

Purchases of freehold residential property by an individual in England and Northern Ireland are subject to Stamp Duty Land Tax on the portion of the purchase price that falls into each of the following rate bands:

  • Value up to £125,000 – Nil
  • £125,001 to £250,000 – 2%
  • £250,001 to £925,000 – 5%
  • £925,001 to £1,500,000 – 10%
  • Over £1,500,000 – 12%

In Scotland, the equivalent bands for a purchaser of a property where the (non first time buyer) purchaser intends to use the property as their main residence will be as follows:

Purchases of freehold residential property by an individual in Scotland are subject to Land & Buildings Transaction Tax on the portion of the purchase price that falls into each of the following rate bands:

  • Value up to £145,000 – Nil
  • £145,001 to £250,000 – 2%
  • £250,001 to £325,000 – 5%
  • £325,001 to £750,000 – 10%
  • Over £750,000 – 12%

In Wales, the equivalent bands for a purchaser of a property where the (non first time buyer) purchaser intends to use the property as their main residence will be as follows:

Purchases of freehold residential property by an individual in Wales are subject to Land Transaction Tax on the portion of the purchase price that falls into each of the following rate bands:

  • Value up to and including £180,000 – 0%
  • £180,001 to £250,000 – 3.5%
  • £250,001 up to £400,000 – 5%
  • £400,001 up to £750,000 – 7.5%
  • £750,001 up to £1,500,000 – 10%
  • The portion over £1,500,000 – 12%

The key point with the different rates in different locations is that the amount of stamp taxes payable will of course therefore differ based on the location of the property and whether it is more, or less, varies significantly by location.

For example:

1.£200,000 Property

A purchaser (who is not a first time buyer) who is buying the freehold of a property for £200,000 as their main residence in March 2019 will pay the following in stamp taxes:

  • England and Northern Ireland – £1,500
  • Scotland – £1,100
  • Wales – £700

2. £500,000 Property

A purchaser (who is not a first time buyer) who is buying the freehold of a house for £500,000 as their main residence in March 2019 will pay the following in stamp taxes:

  • England and Northern Ireland – £15,000
  • Scotland – £23,350
  • Wales – £17,450

3. £1,000,000 Property

A purchaser (who is not a first time buyer) who is buying the freehold of a house for £1,000,000 as their main residence in March 2019 will pay the following in stamp taxes:

  • England and Northern Ireland – £43,750
  • Scotland – £78,350
  • Wales – £61,200

Additional Charges for Additional Properties

Each of the jurisdictions also has higher stamp tax charges for persons who are buying properties which would be classed as “second” or “additional” properties (i.e. the properties will not be used as the persons main residence as they already own, or have an interest in, a property which is their main residence).

In England, Northern Ireland and Wales, for “additional” properties such as buy to let properties, the stamp taxes in the relevant bands of value of the properties acquired are 3% higher than those for properties where the purchaser will use the property as their main residence. In Scotland, the additional tax payable in each band is 4% higher.

Therefore, for example, a person who is buying the freehold of a single buy-to-let property worth £500,000 (assuming they already own a main residence of their own) will suffer the following in stamp taxes on the transaction:

  • England and Northern Ireland – £30,000
  • Scotland – £43,350
  • Wales – £32,450

A person who is buying the freehold of a single buy-to-let property worth £200,000 (assuming they already own a main residence of their own) will suffer the following in stamp taxes on the transaction:

  • England and Northern Ireland – £7,500
  • Scotland – £9,100
  • Wales – £6,700

As you will see from the examples above, in each of the jurisdictions, the tax on additional properties will be higher than the tax arising for someone buying the property as their home. This is deliberate, it raises revenue and is also an attempt to encourage buyers to buy the property to live in, not to rent out. In each of the jurisdictions, residential properties which are acquired by companies rather than individuals are subjected to stamp taxes at the “additional” rates. This is essentially due to those properties being automatically deemed as properties which will not be used as the buyers main residence (logically a company cannot use the property as its main residence).

Lower Stamp Taxes for First Time Buyers – But not Everywhere!

England, Northern Ireland and Scotland have reduced stamp taxes for first time buyers, but Wales does not. In England and Northern Ireland, the first time buyer rates of Stamp Duty Land Tax are as follows:

Purchases of residential property by first time buyers in England and Northern Ireland are subject to Stamp Duty Land Tax on the portion of the purchase price that falls into each of the following rate bands:

  • Value up to £300,000 – Nil
  • £300,001 to £500,000 – 5%
  • Over £500,000 – Standard rates apply

In Scotland the corresponding rates are as follows:

Purchases of residential property by first time buyers in Scotland are subject to Land & Buildings Transaction Tax on the portion of the purchase price that falls into each of the following rate bands:

  • Value up to £175,000 – Nil
  • Over £175,000 – Standard rates apply

In Wales the corresponding rates are as follows:

Purchases of residential property by first time buyers in Wales are subject to Land Transaction Tax on the portion of the purchase price that falls into each of the following rate bands:

  • Value up to £180,000 – Nil (Note: this is the standard rate)
  • Over £180,000 – Standard rates apply

Therefore, for a first time buyer of a residential property costing £250,000 in March 2019, the stamp duty cost in each jurisdiction is as follows:

  • England and Northern Ireland – £0
  • Scotland – £1,500
  • Wales – £2,450

Why Does it Appear That Wales is Comparatively Unhelpful to First Time Buyers by not Having a ‘Discounted’ Bank for Them?

This is because the Welsh Government do not believe that many transactions involving first time buyers will in fact be caught by Land Transaction Tax, as there are few first time buyer transactions where the property price exceeds their £nil band of £180,000. This is demonstrated in the below example. For acquisitions by a first time buyer for a value of £175,000, the stamp taxes payable would be:

  • England and Northern Ireland – £0
  • Scotland – £0
  • Wales – £0

Why are the Stamp Taxes in England and Northern Ireland on More Expensive Properties Typically Lower Than Those in Scotland and Wales?

The answer is due to devolution of taxes to Scotland and Wales. Scotland and Wales have been given the power to set their own rates of stamp taxes which they have then tailored to the property market in their jurisdictions, and typically they have sought to reduce the stamp taxes for lower value transactions and increase them for higher value transactions. Northern Ireland does not have devolved powers over stamp taxes and so the stamp tax rates are matched to those of England.

In England, the stamp duty rates have to take into account the fact that the property market is very heavily skewed by London, and nearly 40% of all SDLT payable from England and Northern Ireland arises from transactions occurring in the London property market. This means that, for example, first time buyer reliefs in England and Northern Ireland have to take into account property values across a very wide range of markets.

The average house price in London is more than three times that in Northern Ireland. The rates in England and Northern Ireland are therefore lower, simply to allow for the fact that there will be a higher number of transactions occurring in England (and in particular the South East of England) at higher values in that combined “jurisdiction” and so significantly more tax will be collected simply due to the number of transactions occurring at a higher average value.

As you will have seen from this article, there are now significant differences in the stamp taxes payable in different parts of the UK and so residential property buyers should calculate their stamp duty costs carefully before committing to a property purchase.

If you would like to discuss this with us in more detail or if you would like to speak with a member of our team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.

This article featured in issue 12 of our construction and real estate newsletter series. Read the full newsletter here: Real Estate Matters – Issue 12