Stamp Duty Land Tax (SDLT) is a tax that is paid to the UK government by individuals and companies who buy property or land over a certain price threshold in England and Northern Ireland. The tax is payable on both freehold and leasehold properties, and also on the transfer of interests in land, such as the grant of a lease.
The amount of SDLT payable depends on the value of the property or land being purchased, with higher rates being applied to more expensive properties. The tax is calculated as a percentage of the purchase price, and the rates vary depending on the type of property and whether the buyer is a first-time buyer or a non-resident.
The responsibility for paying the SDLT usually falls on the buyer, although in some cases the seller may be responsible. The tax is paid to HM Revenue & Customs (HMRC) within 14 days of completion of the sale.
Residential property rates
When you purchase residential property, such as a house or apartment, you often have to pay Stamp Duty Land Tax (SDLT) on escalating amounts of the purchase price.
Only properties worth more than £250,000 are subject to SDLT.
The sum you pay is determined by:
- how much you paid for it
- when you bought the property
- whether you’re eligible for relief or an exemption
Rates for a single property
If you only possess one residential property after purchasing the property, you must pay stamp duty at these rates. If you own additional residential property, you typically pay an additional 3% on top of these rates.
Property or lease premium or transfer value
Up to £250,000
The next £675,000 (the portion from £250,001 to £925,000)
The next £575,000 (the portion from £925,001 to £1.5 million)
The remaining amount (the portion above £1.5 million)
In case you’re buying your first home
You can claim a discount (relief) if the property you buy is your first home. This means you’ll pay:
- no SDLT up to £425,000
- 5% SDLT on the portion from £425,001 to £625,000
You’re eligible if you and anyone else you’re buying with are first-time buyers.
If the price is over £625,000, you cannot claim the relief. Follow the rules for people who’ve bought a home before.
You do not have to pay SDLT or file a return if:
- no money or other payment changes hands for a land or property transfer
- property is left to you in a will
- property is transferred because of divorce or dissolution of a civil partnership.
- you buy a freehold property for less than £40,000
- you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000
- you buy a new or assigned lease of less than 7 years, as long as the amount you pay is less than the residential threshold or non-residential threshold of SDLT
- you use alternative property financial arrangements, for example to comply with Sharia law.
Capital Gains Tax (CGT) is a tax that is levied on the profits or gains that an individual or entity makes when they sell or dispose of an asset, such as shares, property, or other investments. The tax is calculated based on the difference between the sale price or disposal value of the asset and the original purchase price or the cost of acquisition.
The CGT applies to individuals, companies, and trusts, and the tax rate and exemptions vary from country to country. In some countries, the CGT may be a separate tax, while in others, it may be included as part of the overall income tax.
In general, the CGT is designed to encourage long-term investments by offering lower tax rates for assets held for a longer period. It is also a way for governments to raise revenue and can be an important source of income for funding public services and infrastructure.
In the end, two factors determine how much CGT you must pay on a piece of property:
- Your capital or taxable gains are the money you receive when you sell a property.
- The rates at which capital gains tax is assessed to you.
HMRC bases the rates at which you’ll pay capital gains tax on property on your personal income. They determine the Income Tax Band you fall into for the year you made your transaction by adding your taxable profits to your income. On the portion of your capital gain that is taxable, you then pay capital gains tax at the applicable rates.
When calculating your capital gains tax on your property, you must first determine your:
- Overall taxable gain, or the return you received on this investment,
- The taxable gain less any allowable deductions and the CGT allowance
- Your tax threshold and the ensuing CGT rates that apply
How to Calculate Your Overall Taxable Gain
Your taxable gain can be located if you:
- Take the amount you sold your property for
- Deduct the price you paid for that property in the first place
- The amount left over = total taxable gains or your net profit
- You can substitute the current market value for the sale price of your property if you haven’t sold it yet.
You can substitute the current market value for the sale price of your property if you haven’t sold it yet.
You purchase a property for £200,000
You sell the property for £500,000
Your total taxable gain or net profit is: £300,000
You can deduct specific expenses from taxable gains to lower the capital gains tax you must pay on your investment, such as:
- Solicitors’ fees
- Stamp Duty paid when buying the property.
- Estate agents’ fees.
- Costs for improvements to the property.
- Other buying and selling costs - e.g., surveyor.
The estate of a deceased person, comprising all their property, possessions, and money, is subject to inheritance tax (IHT).
For all your assets that are above your nil-rate band threshold, HMRC charges inheritance tax at a rate of 40%. The current limit is £325,000. You may be subject to an inheritance tax charge of 40% of any assets you own that are worth more than £325,000 if you are a single person.
Reliefs and exemptions
Some gifts you make while you’re still living can be subject to taxation after your passing. “Taper relief” could mean that the Inheritance Tax owed on the gift is less than 40%, depending on when you provided it.
Certain assets can be passed on free of Inheritance Tax or with a reduced cost thanks to other reliefs, such Business Relief.
If your estate includes a farm or woodland, speak with the Inheritance Tax and Probate Helpline regarding Agricultural Relief.
A yearly fee known as the Annual Tax on Enveloped Dwellings (ATED) is applied to UK residences owned by Non-Natural Persons (NNPs), such as corporations. Unless a respite is requested, the ATED is applicable to properties that exceed a certain value.
ATED is an annual tax that is primarily due by businesses with UK residential real estate worth more than £500,000.
The amount you’ll need to pay is worked out using a banding system based on the value of your property.
Chargeable amounts for 1 April 2023 to 31 March 2024
More than £500,000 up to £1 million
More than £1 million up to £2 million
More than £2 million up to £5 million
More than £5 million up to £10 million
More than £10 million up to £20 million
More than £20 million
The ATED fee is waived for non-profit organisations that use residential property for philanthropic purposes, as well as for government agencies and organisations with broad-based mandates.
When non-UK residents sell off real estate or other assets in the UK, the NRCGT imposes a tax on the UK. As of April 6, 2019, disposals must follow the most recent version of the regime. When it came to sales conducted between April 6, 2015, and April 5, 2019, a previous version of the regime—which solely applied to sales of residential property in the UK—was in effect. Depending on the kind of disposal, different regulations apply for determining the NRCGT gain or loss.
The NRCGT regime applies to all non-resident taxpayers, not simply those who fall within the purview of CGT. As a result, the regime is applicable to all parties, including private parties, personal representatives, trustees, partnerships, corporations, and collective investment vehicles.
If the asset is purchased after April 6, 2019, the NRCGT gain, or loss is determined as follows:
While NRCGT is only applied to non-residents as of 6 April 2015, the valuation of residential property in the UK is rebased at that time so that only gains beyond that amount are subject to taxation. For non-residential assets and those held indirectly, rebasing is necessary as of 6 April 2019. As an alternative, you can decide whether the calculation should be done using actual costs or a time-apportioned basis.
Even if the tax year is divided, non-resident people will be able to claim an annual exemption for NRCGT purposes. NRCGT is payable at the ordinary CGT rates prevailing in the UK, therefore qualifying FHLs will generally be liable to a 10% tax rate on sale, given that business asset disposal relief (previously entrepreneurs’ relief) applies.
Although the meanings of these concepts may seem difficult, they can be simply explained as:
If a property is freehold, you have unlimited ownership over both the land and the building. If it is leasehold, then for a specific time, you are the owner of the building, but not the ground on which it is situated.