As a property buyer, it’s important to be aware of the SDLT (Stamp Duty Land Tax) rules and when you’re exempt from paying it. In this post, we’ll take a closer look at the different exemptions which may help you and discuss who is exempt from paying stamp duty land tax.
What is SDLT?
Stamp duty land tax is a tax that is charged on property transactions in the United Kingdom.
The way SDLT is calculated is based on the pricing of the property and is calculated once the transfer is in process.
The circumstances where pay stamp duty exemption applies when you buy a freehold property, buy an existing or new leasehold, buy a property through a shared ownership scheme or for exchange of payment you have transferred the property or land.
Are There Any Exemptions To Stamp Duty?
It is important to know exactly who is exempt from paying Stamp Duty and therefore who may qualify for a stamp duty refund, and if there is any stamp duty exemption for your situation.
The main reason customers get in touch with us is to find out if they are eligible to make a claim and are therefore exempt from paying stamp duty.
There are multiple exemptions that mean you don’t have to pay SDLT. They include any property that is left in a will, if no money or payment is exchanged, or if property is transferred because of divorce or a civil partnership dissolution.
You are also exempt from SDLT if you purchase a freehold property which costs less than £40,000, or you purchase a new lease of 7 years or more provided the premium is below £40,000.
If the annual rent is below £1000, or you have purchased a property using alternative financial arrangements.
First-Time Buyers
From the 22nd of September 2022, first-time buyers are exempt from SDLT on properties worth up to £425,000. This exemption can save first-time buyers up to 5% on the purchase of their new home.
When asking if there are any exemptions to stamp duty, it is important to know the SDLT exemption is available to first-time buyers who are buying a property to live in as their main residence.
If the property you are purchasing is over £425,001 but less than £625,000 you will have to pay 5% SDLT on the remainder.
If you purchased a property as a first-time buyer but are not sure if you benefit from first-time buyer exemption or relief, you may qualify for a refund.
Shared Ownership
Shared ownership is a housing scheme that allows people within the United Kingdom to purchase a share in a property, normally between 25% and 75%.
Normally with this process, stair casing is used as a way to give you the chance to slowly increase the amount of shares you have in the property, based on the amount of time you have had shares in the property.
Divorce or Separation Exemption
Given that the separation or divorce is made under a court order or separation order, then the transfer of the property will not come with an SDLT charge.
If a couple chooses to separate and fails to get a court order or simply just doesn’t attain a court order, then they will be treated for SDLT purposes but as an unmarried couple, this could be beneficial for some people as they will not be included with anything the other spouse owns when it comes to buying their own residence.
What Properties Are Exempt From Stamp Duty?
There are many different types of properties and situations that people come across when looking at stamp duty payments, and so it is important to know what properties are exempt from stamp duty payments and whether you fall into one of these categories.
Inherited Properties
Usually, in terms of stamp duty exemption, if you are gifted a property or unfortunately inherit the property due to someone’s passing, then you will not need to pay stamp duty land tax on the property that you inherit, however inheriting a property can have slight implications when it comes to purchasing a home later down the line, in terms of certain tax reliefs, such as first-time buyers’ relief.
If you have been handed the property, and your ownership over said property is over 50%, then, unfortunately, you will miss out on the benefit, in the future when you go to buy any other property, you may be charged SDLT on that residence because it will be classed as an additional property.
However, on the bright side, if your percentage of the ownership is less or equal to 50% and you purchase a residence within three years of claiming your inherited property, then you will not need to pay additional SDLT on the second property, although you will not qualify for the first time buyer’s relief.
Agricultural Land
Specific regions across the country may hold parts of agricultural land to be exempt or at least have reduced rates of stamp duty on them, this is to promote the food production industry, whilst also promoting the increase of farmers.
Also, in certain jurisdictions governments tend to promote the green building sector, this is where the building is designed to complement the environment around it, usually, stamp duty exemption or reliefs can be offered and this will hopefully increase sustainable development and reduce the carbon footprint within the real estate sector.
Industrial or economic development zones can also be an area for stamp duty exemption and reliefs, as the government’s hope is to promote job creation and boost the economic growth of that area.
Uninhabitable Properties
If you are looking to purchase a property and wonder if it will be deemed uninhabitable or not, HMRC will assess the property and consider important factors such as a functional working kitchen, bathroom and sleeping area.
If the property is then deemed uninhabitable, non-residential rates will apply these rates are as follows:
- Up to £150,000 SDLT rate – 0%
- The next £100,000 SDLT rate – 2%
- The remaining amount SDLT rate – 5%
The experts at CapEx Tax would be happy to talk to you to see if you qualify for a stamp duty exemption and therefore can claim a refund, and we can help you through the steps to claim your money back.