HMRC SDLT: SDLTM13038 – Calculation of stamp duty land tax: Deposit & loan arrangements

Principles and Concepts of Stamp Duty Land Tax

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 necessary for understanding SDLT implications in these contexts.

Explains the calculation methods for SDLT on property transactions.
Covers the role of deposits in SDLT calculations.
Discusses the impact of loan arrangements on SDLT liability.
Provides examples to illustrate SDLT calculations.

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Read the original guidance here:
HMRC SDLT: SDLTM13038 – Calculation of stamp duty land tax: Deposit & loan arrangements

Understanding Stamp Duty Land Tax: Deposit and Loan Arrangements

This article explains how stamp duty land tax (SDLT) is calculated when you purchase a property, focusing specifically on deposit and loan arrangements. Understanding these key aspects can help you navigate the potential costs involved in buying a home.

What is Stamp Duty Land Tax?

Stamp Duty Land Tax is a tax you pay when you buy a property or land over a certain price in England and Northern Ireland. The amount of tax depends on the purchase price and whether you are a first-time buyer or an investor.

How is SDLT Calculated?

The calculation of SDLT involves several factors:

Property Value: The higher the purchase price, the more tax you may have to pay.
Property Type: Residential properties have different rates compared to commercial ones.
Lender’s Requirements: If you’re using a loan to purchase the property, this can influence the SDLT calculation.
First-time Buyers: There are specific reliefs that can reduce the amount you owe.

Deposit and Loan Overview

When buying a property, you typically pay a deposit upfront, which is a percentage of the total purchase price. The rest is usually covered by a mortgage or loan from a lender.

Deposit

The deposit shows the seller that you are serious about the purchase. It is normally between 5% and 20% of the purchase price. The higher your deposit, the less you will need to borrow.

Example of Deposit Impact

If you are purchasing a home valued at £250,000:

If your deposit is 5%, you pay £12,500 upfront. You will then borrow £237,500.
If your deposit is 20%, you pay £50,000 upfront. You will borrow £200,000.

The size of your deposit can affect your mortgage terms, including interest rates.

Loan

The remaining amount needed to buy the property is often financed through a mortgage. The total amount borrowed, combined with your deposit, must cover the property’s full purchase price.

Calculating SDLT with Deposit and Loan

When calculating SDLT, it’s important to note that the calculation is based on the entire purchase price of the property, not just the amount you borrow. Both the deposit and loan are relevant, but only as a means to secure the property. Here’s how that works:

SDLT Calculation Example

Let’s say you buy a property for £250,000.

Full Purchase Price: £250,000
Deposit: £25,000 (10% of the purchase price)
Loan/Mortgage: £225,000

Even though you are placing a £25,000 deposit and borrowing £225,000, your SDLT will still be calculated based on the full price of £250,000.

SDLT Calculations Steps

The SDLT bands determine how much you will pay:

0% on the first £250,000 for first-time buyers (for properties valued up to £425,000)
2% on any portion from £250,001 to £925,000

For our £250,000 example, if you are a first-time buyer, you would not pay any SDLT. For someone who is not a first-time buyer, the calculation would look as follows:

0% on the first £250,000 = £0
Total SDLT due = £0

However, if you were purchasing a property valued at £300,000:

0% on the first £250,000 = £0
2% on the next £50,000 (£250,001 to £300,000) = £1,000

Total SDLT due would now be £1,000.

Important Considerations

Shared Ownership

If you are buying a shared ownership property, the SDLT will be calculated based on the total price of the property you are buying and not just your share. For example:

If the property is valued at £400,000 and you are purchasing a 50% share, your SDLT will be calculated on £400,000.

Investment Properties

If you plan to buy a second home or an investment property, the SDLT rules differ slightly. You will pay an additional 3% on top of the standard rates if you already own one property, regardless of how much you borrow. Here’s a breakdown:

Property Price: £300,000
Standard SDLT: £1,000 (for the example above)
Additional Rate: 3% on the entire £300,000, which equals £9,000

Your total SDLT would therefore be £10,000

Reliefs Availability

There are some reliefs available that can help with your SDLT. A noteworthy example is for first-time buyers, where reliefs apply up to £425,000. Additionally, if you are buying a property that needs extensive renovation and is classed as ‘dilapidated’, you may also be eligible for relief.

Paying Your SDLT

The SDLT must be paid within 14 days of the completion of the purchase. Your solicitor or conveyancer usually handles this payment for you, ensuring that everything is settled correctly. If you miss the deadline, you could face penalties and interest on the amount owed.

How to Declare SDLT

Your SDLT is declared using a specific form called the SDLT return. This includes essential information about the property, purchase price, and the parties involved in the transaction.

Where to Find More Information

For more detailed guidance, please visit the HMRC website or consult any relevant links like SDLTM0000.

Total Costs Involved

When budgeting for your property purchase, remember to factor in the following costs alongside SDLT:

Solicitors Fees: Legal costs for property acquisition.
Surveys: Costs for property inspections to identify any issues.
Removal Fees: Payments for moving your belongings.
Other Taxes: Possible local taxes or fees depending on the area.

By understanding how SDLT is calculated and the implications of your deposit and loan arrangements, you can better prepare for the financial aspects of purchasing a property in the UK. This enables you to make informed decisions and ensures you are fully aware of the costs involved in your property transaction.