Read the original guidance here:
HMRC SDLT: Property Purchase by P: £1.2M Student Occupied, 5% Tax

Understanding Stamp Duty Land Tax (SDLT) for Residential Properties

Stamp Duty Land Tax (SDLT) is a tax that you must pay when you buy a property in the UK. The amount you pay depends on the price of the property, and there are different rates for different parts of the property market, including residential and non-residential properties. This article explains how SDLT works for residential properties and outlines some key principles and concepts to help you understand your responsibilities.

What is Stamp Duty Land Tax?

SDLT is a tax on property transactions. When you purchase a property or land, you need to pay this tax to HMRC. The rate of SDLT depends on the price of the property you buy and whether it is used for residential or non-residential purposes.

How SDLT is Calculated

The amount of SDLT you owe is based on a series of bands, each corresponding to a price range. For instance, if you buy a residential property, you’ll pay different rates of tax depending on how much the property costs:

• For properties costing up to £125,000, there is no SDLT.
• For properties costing between £125,001 and £250,000, you pay 2% on the amount above £125,000.
• For properties costing between £250,001 and £925,000, you pay 5% on the amount above £250,000.
• For properties costing between £925,001 and £1.5 million, you pay 10% on the amount above £925,000.
• For properties costing more than £1.5 million, you pay 12% on the amount above £1.5 million.

Example of SDLT Calculation

Let’s look at an example to make this clearer:

If a person, referred to as P, buys a large residential property for £1.2 million, the SDLT would be calculated as follows:

• No SDLT on the first £125,000.
• 2% on the next £125,000 (from £125,001 to £250,000) equals £2,500.
• 5% on the amount from £250,001 to £925,000 (which is £675,000) equals £33,750.
• 10% on the amount from £925,001 to £1.2 million (which is £275,000) equals £27,500.

Adding these amounts together gives:

• £0 (first £125,000)
• £2,500 (next £125,000)
• £33,750 (next £675,000)
• £27,500 (last £275,000)

In total, P would owe £63,750 in SDLT when purchasing the property.

SDLT for Houses with Multiple Occupants

If a residential property is occupied by multiple tenants, such as students, it may still be subject to the same SDLT rules. For example:

P buys a large property which houses multiple students. The purchase price is £1.2 million, and because this is classified under S116(2)(b) as residential property, the normal SDLT rates apply. Thus, the calculation remains as explained above, and P still pays £63,750 in SDLT.

Special Cases and Reliefs

There are specific situations where you might pay a reduced rate of SDLT or no SDLT at all. These situations include:

• First-time buyers: If you are a first-time buyer purchasing a home under £500,000, you may be eligible for relief.
• Buying a new property: Sometimes when buying a newly built home, you might receive a discount on SDLT.
• Investing in social housing: Investments made to acquire approved social housing may qualify for lower SDLT rates.

When is SDLT Due?

You are required to pay SDLT within 14 days of completing the property purchase. Completing means when you receive the keys or take possession of the property.

Filing Your SDLT Return

Alongside paying SDLT, you must also submit an SDLT return to HMRC. This document details your property purchase and confirms how much SDLT you are paying. You typically submit this through an online system or via a paper form.

It’s essential to ensure you file this return promptly, as failing to do so could lead to penalties and interest on any unpaid SDLT.

What to Do If You Make a Mistake

If you discover that you have made an error in your SDLT return, you need to take action. This means you should correct your return as soon as possible and pay any additional SDLT owed. HMRC has guidelines for how to correct mistakes, and penalties may apply for late payments.

Buying and Selling Multiple Properties

If you are purchasing multiple properties at the same time, such as buy-to-let properties, the SDLT can be affected by certain additional considerations:

• If you buy multiple residential properties, you may face the additional 3% surcharge on each property over £40,000.
• For example, if you buy one property at £400,000 and another at £200,000, you would pay 3% on the full £200,000 purchase price for your second property.

Understanding Additional Residential Property Surcharge

The additional 3% surcharge applies if you already own one or more residential properties. If you are buying an extra property, the tax intentionally increases. This rule encourages individuals to invest in the housing market without excessively increasing the number of buy-to-let properties.

Your Responsibilities

As a property buyer, it’s your responsibility to:

• Calculate the correct amount of SDLT you owe.
• Submit your SDLT return within the 14-day window.
• Pay the SDLT before the deadline to avoid penalties.

Failure to meet these responsibilities can result in financial penalties and additional interest charges on overdue amounts.

Final Notes on SDLT

Understanding how SDLT works is vital for anyone looking to buy property in the UK. It’s important to stay informed about the various rules and exemptions since property taxes can vary based on location and property type. Always consider consulting with a tax professional if you are unsure about any aspects of your SDLT obligations.