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HMRC SDLT: SDLTM30060 – Example: P buys a large property which is in multiple occupation by students

Understanding the Stamp Duty Land Tax (SDLT) on Residential Property Purchases

When you buy a property in the UK, you may have to pay a tax called Stamp Duty Land Tax (SDLT). This tax applies to most property purchases, and it’s essential to know how it works, especially when buying residential property. Below is a straightforward guide to help you understand SDLT, its rates, and how it applies to your situation.

What is SDLT?

Stamp Duty Land Tax is a tax imposed by the government when you purchase a property in the UK. The amount you pay depends on the property’s purchase price and the type of property it is. SDLT is calculated based on the price of the property, and different rates apply depending on the value and type of property.

Types of Property

SDLT applies to various types of properties, but it is particularly important to distinguish between residential and non-residential property. Here are the main types of property:

• Residential Property: This includes homes and properties where people live. If you’re buying a house, flat, or any other dwelling, this category applies to you.
• Non-Residential Property: This covers commercial buildings, land used for business purposes, and agricultural land. Different SDLT rates apply to these properties.

Buying Residential Property

When buying residential property, the SDLT you owe will depend on the purchase price and whether you’re a first-time buyer. Below are key details on how this works:

SDLT Rates for Residential Properties

The amount of SDLT you pay increases in stages based on the value of the property. Here’s how the current rates apply:

• For properties costing up to £125,000, you pay 0% SDLT.
• For properties costing between £125,001 and £250,000, you pay 2% on the portion above £125,000.
• For properties priced between £250,001 and £925,000, you pay 5% on the portion above £250,000.
• For properties between £925,001 and £1.5 million, you pay 10% on the portion above £925,000.
• For properties costing above £1.5 million, the rate is 12% on the portion above £1.5 million.

Example of SDLT Calculation

Let’s look at an example to clarify how SDLT is calculated:

Example: If P buys a large property for £1.2 million:

• The first £125,000 is tax-free (0% rate).
• On the next £125,000 (from £125,001 to £250,000), P will pay 2%, which amounts to £2,500.
• On the portion from £250,001 to £925,000 (which is £675,000), P will pay 5%, totalling £33,750.
• For the remaining portion from £925,001 to £1.2 million (which is £275,000), P will pay 10%, resulting in £27,500.

Adding these amounts together:

• £2,500 (2% on the first £125,000 above £125,000)
• £33,750 (5% on the £675,000 from £250,001 to £925,000)
• £27,500 (10% on the £275,000 from £925,001 to £1,200,000)
• Total SDLT Paid by P: £63,750

First-Time Buyers Relief

If you are a first-time buyer, you may be eligible for a relief that lowers the amount of SDLT you need to pay. Here is how it works:

• First-time buyers purchasing a home valued up to £425,000 do not pay SDLT on the first £300,000 and pay 5% on any portion between £300,001 and £425,000.
• If the property costs more than £425,000, you will pay SDLT at the normal rates.
• This relief is available only if you have never owned a property before anywhere in the world.

Further Example of First-Time Buyers Relief

Example: If a first-time buyer purchases a home for £400,000:

• The first £300,000 is tax-free (0% rate).
• On the remaining £100,000 (from £300,001 to £400,000), the buyer will pay 5%, which is £5,000.

Thus, the total SDLT for a first-time buyer purchasing a home for £400,000 would be £5,000.

Multiple Dwellings Relief

When you buy multiple properties as part of a single transaction, you may be eligible for Multiple Dwellings Relief (MDR). This relief can reduce the amount of SDLT you owe. Here’s what you need to know:

• MDR applies when you buy two or more residential properties in one transaction.
• The relief is calculated based on the average price of the properties.
• To benefit from MDR, the properties must be considered as a single transaction.

Example of Multiple Dwellings Relief

Example: If an investor buys four apartments for £1 million:

• The average price per apartment is £250,000.
• For the first £125,000 of each apartment, the investor pays 0% on each.
• On the next £125,000 of each apartment, they pay 2%, which is £5,000 for each apartment.
• Thus, for all four apartments, they will owe £20,000 (four individual £5,000 amounts).

So, the total SDLT for buying the four apartments for £1 million, using Multiple Dwellings Relief, would be £20,000.

Higher Rates for Additional Properties

If you buy an additional residential property, such as a second home or buy-to-let property, higher SDLT rates may apply. This is important for investors or anyone looking to expand their property portfolio.

• The additional 3% rate applies on top of the standard residential rates.
• This means if you buy a second home, you will pay an additional 3% on all parts of the purchase price.

Example of Higher Rates for Additional Properties

Example: If someone buys a second home for £300,000:

• For the first £125,000, they pay 3% (instead of 0%), which is £3,750.
• For the next £125,000, they pay 5% (instead of 2%), which is £6,250.
• On the remaining £50,000, they pay 8% (instead of 5