HMRC SDLT: SDLTM13060 – Calculation of stamp duty land tax: Deposit & loan arrangements: Example 4

Stamp Duty Land Tax: Deposit & Loan Arrangements

This section of the HMRC internal manual provides guidance on calculating Stamp Duty Land Tax (SDLT) with a focus on deposit and loan arrangements. Example 4 illustrates specific scenarios and calculations.

• Explains the principles of SDLT in relation to deposits and loans.
• Provides a detailed example to clarify the application of SDLT rules.
• Aims to assist HMRC staff in understanding complex tax calculations.
• Ensures compliance with UK tax regulations.

Understanding the Calculation of Stamp Duty Land Tax: Deposit & Loan Arrangements (Example 4)

When buying a property, paying the right amount of Stamp Duty Land Tax (SDLT) is essential. This guide will explain how to calculate SDLT when dealing with various deposit and loan arrangements, using a straightforward example.

What Is Stamp Duty Land Tax (SDLT)?

Stamp Duty Land Tax is a tax you pay when you purchase a property or land in England and Northern Ireland. The amount you owe depends on the property price and the payment method you choose. Understanding how to calculate this tax can save you money and make the buying process smoother.

Key Concepts Involved in SDLT Calculation

• Property Value: The total purchase price of the property you’re buying.
• Deposit: The initial amount of money you pay towards the purchase price. A larger deposit can reduce the amount you need to borrow.
• Loan: The amount of money you borrow from a bank or mortgage provider to complete the purchase.
• SDLT Rates: Different thresholds apply for different price ranges. The more expensive the property, the higher the SDLT rate.

The Scenario: Example 4

Let’s say you’re buying a property worth £400,000. You are making a deposit of £40,000, and you are taking out a mortgage for £360,000. In this example, we will demonstrate how SDLT is calculated based on this deposit and loan arrangement.

Step-by-Step SDLT Calculation

Here’s a breakdown of how to calculate SDLT for your property purchase:

1. Identify the Purchase Price

The property’s purchase price is £400,000 in our example.

2. Understand the SDLT Rates

As of now, the SDLT rates for residential properties are as follows:

• 0% on the first £125,000
• 2% on the next £125,000 (from £125,001 to £250,000)
• 5% on the next £675,000 (from £250,001 to £925,000)
• 10% on the next £575,000 (from £925,001 to £1.5 million)
• 12% on any value above £1.5 million

3. Calculate SDLT Based on the Purchase Price

Now, let’s apply these rates to the purchase price of £400,000:

• The first £125,000 is taxed at 0%, so that’s £0.
• The next £125,000 (from £125,001 to £250,000) is taxed at 2%, which equals:
  • £125,000 * 2% = £2,500
• The remaining amount is £400,000 – £250,000 = £150,000. This is taxed at 5%, which equals:
  • £150,000 * 5% = £7,500

4. Total SDLT Amount

Now, add up all the SDLT amounts calculated:

• £0 (from the first band) + £2,500 (from the second band) + £7,500 (from the third band) = £10,000

So, the total SDLT you will pay for this property is £10,000.

Understanding the Deposit and Loan Relationship

In our example, you made a deposit of £40,000 and borrowed £360,000. Although the deposit affects your overall financing and mortgage arrangement, it does not directly influence the SDLT calculation. Here’s how the deposit and loan relationship works:

• Deposit: The £40,000 deposit reduces the amount needed for a mortgage but does not change the SDLT calculation.
• Loan Amount: The loan amount affects your monthly payments but does not impact the SDLT amount due at the time of purchase.

Additional Considerations

While this example provides a basic understanding of SDLT calculation, there are other factors you may need to consider:

First-Time Buyers

If you are a first-time buyer, you may benefit from SDLT relief. As of the current rules, first-time buyers do not pay SDLT on properties worth up to £425,000. For any amount above this, different rates apply. Make sure to check whether you qualify for this relief before calculating your SDLT.

Additional Properties

If you are purchasing an additional residential property (like a second home), an extra 3% SDLT will apply on top of the standard rates. This is known as the Higher Rate for Additional Dwellings (HRAD).

Shared Ownership

In the case of shared ownership schemes, you usually pay SDLT only on the purchase price of the share you are buying. For example, if you buy a 50% share in a £300,000 property, you would only pay SDLT based on the £150,000 value of the share.

Next Steps

After calculating your SDLT amount, it’s important to budget for it alongside other purchasing costs, such as legal fees, surveys, and removals. Make sure to apply for your SDLT reliefs where applicable and submit your SDLT return to HMRC to pay the tax on time.

For more detailed examples and scenarios regarding Stamp Duty Land Tax, check out the following resources:

• Visit the SDLT Guidance Page

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM13060 – Calculation of stamp duty land tax: Deposit & loan arrangements: Example 4

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