HMRC SDLT: SDLTM13040 – Calculation of stamp duty land tax: Deposit & loan arrangements
Calculation of Stamp Duty Land Tax: Deposit & Loan Arrangements
This section of the HMRC internal manual provides guidance on the calculation of Stamp Duty Land Tax (SDLT) concerning deposit and loan arrangements. It outlines the principles and concepts involved in determining SDLT liabilities.
- Explains how deposits affect SDLT calculations.
- Details the impact of loan arrangements on SDLT.
- Clarifies legal obligations for taxpayers.
- Provides examples for better understanding.
- Ensures compliance with UK tax regulations.
Read the original guidance here:
HMRC SDLT: SDLTM13040 – Calculation of stamp duty land tax: Deposit & loan arrangements
Calculation of Stamp Duty Land Tax: Deposit & Loan Arrangements
Understanding Stamp Duty Land Tax (SDLT)
Stamp Duty Land Tax (SDLT) is a tax that you may have to pay when you purchase a property or land in England and Northern Ireland. The amount you pay depends on the price of the property and other factors involved in the purchase.
When you are calculating SDLT, two key factors come into play: the deposit you pay when securing the property and the loan arrangements you have. Understanding how these factors influence the SDLT calculation is essential for buyers.
Key Components of SDLT Calculation
The SDLT calculation is based on the following components:
– Purchase Price: This is the total price you pay for the property. It includes cash sums and the total value of any loans or other arrangements that contribute to the purchase price.
– Deposit: This is the amount you put down initially to secure the property. It is typically a percentage of the overall purchase price.
– Loan Amount: This refers to any mortgage or other forms of finance that you take out to help buy the property.
Example of Calculation
Let’s say you are purchasing a house for £250,000. If your deposit is £25,000 and you take out a mortgage for the remaining £225,000, the total considered for SDLT purposes is still £250,000. The SDLT amount would be calculated based on the full purchase price, not just the loan or the deposit.
Detailed Breakdown of How to Calculate SDLT Based on Deposit and Loan Arrangements
1. Identify the Full Purchase Price:
– This is the figure on which SDLT will be calculated.
– It does not matter whether you are paying partially in cash or are using financing like a mortgage.
2. Deposits:
– The deposit you put down is part of the overall purchase price.
– Even if your deposit is small, the SDLT is still calculated on the total price of the house.
3. Loan Arrangements:
– It is important to note that when you obtain a loan to buy a property, the amount you borrow contributes to the purchase price.
– Therefore, whether you are borrowing a small or large amount, it will not affect the SDLT calculation directly because it’s the total price that matters.
Example Consideration
Assume you are buying a property for £450,000. You decide to pay a £50,000 deposit and take out a mortgage for the remaining £400,000. Your SDLT is calculated on the full purchase price of £450,000, rather than just the amount borrowed or deposited.
Understanding How Different Deposit and Loan Arrangements Affect SDLT
When calculating SDLT, you should also consider the following:
– Different Types of Deposits:
– If you have a larger deposit, it might affect how much you need to borrow. However, SDLT is still calculated based on the entire property price.
– Gifted Deposits:
– If someone gifts you part of your deposit money, this does not change the SDLT calculation.
– The tax is still on the total cost of the property.
– Zero-Deposit Mortgages:
– In certain cases, you might find mortgage options with no deposit requirements.
– Even if no deposit is given, the SDLT calculation still considers the full property price.
Stamp Duty Rates
From April 2021 onwards, the rates for SDLT have changed. Here is how the rates work:
– For properties costing up to £125,000, the SDLT rate is 0%.
– For properties priced between £125,001 and £250,000, the SDLT is charged at 2%.
– For properties priced between £250,001 and £925,000, the tax rate is 5%.
– Higher rates apply to more expensive properties, and these can be checked on the HMRC website.
Example of SDLT Calculation
Using the previously mentioned example of a property purchase price of £450,000:
– The first £125,000 is tax-free: 0%
– The amount from £125,001 to £250,000 (which is £125,000) is taxed at 2%, making it £2,500.
– The amount from £250,001 to £450,000 (which is £200,000) is taxed at 5%, making it £10,000.
In total, your SDLT payable would be £2,500 + £10,000 = £12,500.
Reliefs and Exemptions
There may be certain situations where you can claim exemptions or reliefs which might reduce the amount of SDLT payable.
– First-Time Buyers:
– If you’re a first-time buyer and the price of the property is below £500,000, you might not need to pay any SDLT on the first £300,000.
– Purchasing With Someone Else:
– If you’re buying jointly with someone else, and if either of you is a first-time buyer, this could affect the SDLT calculation.
– Certain Properties:
– In some cases, such as buying a property through a qualifying shared ownership scheme, you could be entitled to reduced SDLT.
Submitting Your SDLT Return
When you’ve calculated how much SDLT you owe, the next step is to submit your SDLT return. You should do this within 14 days of completing your purchase.
– To submit your return, you will need:
– Details of the property you bought.
– Information on how much you paid, including the deposit and the mortgage.
The SDLT payment is usually made at the same time as your return. This can typically be done online through the HMRC website.
Pitfalls to Avoid
Here are few common mistakes you should be aware of when calculating SDLT:
– Confusing Deposit and Loan Amounts:
– Remember that SDLT is based on the total purchase price, not the deposit or loan amount separately.
– Missing the Deadline:
– Make sure to submit your SDLT return within 14 days to avoid penalties.
– Incorrect Rate Application:
– Be diligent about which tax rate applies to your purchase price, double-check the SDLT thresholds.
– Failing to Account for Reliefs:
– If you qualify for any reliefs, ensure these are claimed to avoid overpaying tax.
Resources for Further Assistance
For further details on SDLT, including rates and how to submit your return, you can visit the official HMRC guidance page or contact a tax professional for tailored advice. Here is a useful link to start your research: SDLTM0000.
By understanding the factors involved in the SDLT calculation, including your deposit and loan arrangements, you can effectively manage your financial responsibilities when purchasing property. It is always beneficial to be informed and to seek advice if unsure.