HMRC SDLT: SDLTM09745 – SDLT – higher rates for additional dwellings: Rates of SDLT which apply to Higher Rates Transactions – Para 1(2) Sch 4ZA FA2003

Principles and Concepts of SDLT Higher Rates for Additional Dwellings

This section of the HMRC internal manual outlines the Stamp Duty Land Tax (SDLT) higher rates applicable to transactions involving additional dwellings. It provides guidance on the rates and conditions under which these higher rates apply, as per Paragraph 1(2) of Schedule 4ZA of the Finance Act 2003.

• Explains the higher rates for additional dwellings.
• Details the applicable rates for “Higher Rates Transactions”.
• Guidance is based on Schedule 4ZA of the Finance Act 2003.
• Intended for internal use by HMRC staff.

Understanding Higher Rates of Stamp Duty Land Tax (SDLT)

The Stamp Duty Land Tax (SDLT) is a tax applied when you buy property or land in the UK. If you purchase additional dwellings (such as buy-to-let properties or second homes), different rates can apply. This guide explains the higher rates of SDLT specifically for these transactions.

What is SDLT?

SDLT is a tiered tax. This means you pay different rates depending on the property price. You only pay tax on the portion of the price that falls within each band. If you’re buying your first home, you may be eligible for relief and lower rates, but this does not apply if you’re buying an additional property.

What Are Higher Rates Transactions?

A ‘Higher Rates Transaction’ refers to the purchase of an additional property. If you buy a second home, a rental property, or a buy-to-let property, you will be subject to higher SDLT rates. This is designed to discourage multiple property ownership.

Who Pays Higher Rates of SDLT?

You’ll need to pay higher rates if:

• You buy an additional residential property.
• You already own a home, regardless of whether it’s your main residence or not.
• The new property you buy is not replacing your main residence.

How Are Higher Rates Calculated?

Higher rates are charged at a rate of 3% above the standard rates of SDLT for residential properties. It’s important to understand how this is applied based on the property price. The calculations are as follows:

• 0% on the first £250,000
• 5% on the portion from £250,001 to £925,000
• 10% on the portion from £925,001 to £1.5 million
• 12% on anything above £1.5 million

For an additional dwelling, simply add 3% to each of these bands. For example, if you’re buying an additional property worth £300,000, you would calculate the SDLT as follows:

• 0% on the first £250,000 = £0
• 5% on the next £50,000 = £2,500
• Total SDLT = £2,500 plus 3% higher rate on the whole amount = £2,500 + £9,000 = £11,500

Key Principles Behind Higher Rates

The policy behind higher rates of SDLT aims to:

• Discourage property speculation, making it less attractive to own multiple properties without genuine need.
• Encourage homeownership among first-time buyers by reducing the cost burden on their purchases.

Exemptions and Reliefs

There are specific situations where you may not need to pay the higher rates:

• If you are replacing your main residence, and the new property costs less than the property you’re selling
• If you are buying an additional property that is not in the UK or is classified differently (like commercial property)

Important Considerations

Here are some critical factors to keep in mind when dealing with SDLT on additional dwellings:

• Timing: If you purchase a new property and your previous home has not yet sold, the higher rates will generally apply.
• Ownership Structure: If you are purchasing jointly with someone else, all owners must individually meet the criteria for higher rates, which could impact overall SDLT costs.
• Investment Properties: The definition of an additional dwelling includes properties bought for investment purposes. Keep this in mind when calculating potential SDLT payments.

Resources and References

The official information and rates related to higher SDLT transactions can be found on the HMRC website. For a detailed understanding of how higher rates apply, please refer to the section SDLTM09745 – SDLT – higher rates for additional dwellings.

This resource outlines specific circumstances under which higher rates are charged and can help clarify any confusion regarding the application of SDLT in various scenarios related to additional dwellings.

Examples of Higher Rates Applications

Here are a couple of typical scenarios illustrating how higher rates apply:

Example 1: Buying a Buy-to-Let Property

If you already own a home and decide to purchase a buy-to-let property for £400,000, you will be subject to higher rates:

• 0% on the first £250,000 = £0
• 5% on the next £150,000 = £7,500
• Higher rate (3%) applies on the full amount: 3% of £400,000 = £12,000.
• Total SDLT = £7,500 + £12,000 = £19,500.

Example 2: Purchasing a Second Home

If you are selling your main residence for £500,000 and wish to buy a second home for £600,000:

• You have owned the existing home, which means the higher rate still applies to the new purchase.
• 0% on the first £250,000 = £0
• 5% on the next £250,000 = £12,500
• 10% on the remaining £100,000 = £10,000
• Higher rate (3%) applies on the full amount: 3% of £600,000 = £18,000.
• Total SDLT = £12,500 + £10,000 + £18,000 = £40,500.

Submission and Payment of SDLT

Upon purchasing an additional dwelling, you must submit your SDLT return and pay the tax due within 14 days of completion. It is essential to keep a record of your calculations and submit all necessary information accurately, as penalties can apply for late submission or incorrect information.

For more information on your SDLT obligations, including how to file your returns, visit the official HMRC website or seek professional advice if required.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09745 – SDLT – higher rates for additional dwellings: Rates of SDLT which apply to Higher Rates Transactions – Para 1(2) Sch 4ZA FA2003

View all HMRC SDLT Guidance Pages Here