Tax is charged on land and property transactions in the UK when you buy a freehold property or a lease.
The amount of tax charged depends on the country in which the property is located, and the value of the transaction. There are also different thresholds at which tax becomes payable depending on the type of property.
If the property is located in England, then pay Stamp Duty Land Tax (SDLT). In Wales, Land Transaction Tax (LTT) replaced SDLT in April 2018. In Scotland, Land and Buildings Transaction Tax has applied since April 2015.
The devolved power to set property transaction tax allows national governments to set policies that better suit the citizens of their countries (for example, in respect to housing for first-time buyers), and to raise revenues that can be reinvested in local projects.
The tax rates and payment thresholds can vary according to whether the property is in residential or non-residential use, and whether the lease is a freehold or leasehold. Tax relief is available for certain kinds of property or transaction.
Taxes for Scotland and Wales are well explained on the government websites. See https://www.gov.scot/policies/taxes/land-and-buildings-transaction-tax/ for Scotland and https://gov.wales/land-transaction-tax-guide for Wales.
Stamp duty in England
In 2021/22, the SDLT threshold is £125,000 for residential properties and £150,000 for non-residential land and properties.
If the property is your first home, you bought it after 22 November 2017 and the purchase price was less than £500,000 then you are entitled to a relief (discount on the tax payable). You pay no tax on properties bought for less than £300,000. For properties bought for up to £500,000, you subtract £300,000 from the price and pay 5% of the remainder as tax.
If the transaction involves the purchase of a new lease with a substantial rent there may be an additional Stamp Duty Land Tax charge based on the rent.
If the value of the sale is above the payment threshold, SDLT is charged at the appropriate rate on the whole of the amount paid.
Residential properties with substantial rents
When a new residential lease has a substantial annual rent, SDLT is payable on both of the following, which are calculated separately and then added together:
- the lease premium (purchase price)
- the 'net present value' (NPV) of the rent payable
The NPV is based on the value of the total rent over the life of the lease and can be worked out using the HMRC online calculator.
In practice, SDLT only becomes payable on fairly high rent. The exact amount depends on the length of the lease.
Non-residential property
Non-residential property includes:
- commercial property such as shops or offices
- agricultural land
- forests
- any other land or property which is not used as a dwelling
- six or more residential properties bought in a single transaction
A mixed-use property is one that incorporates both residential and non-residential elements.
When a new non-residential or mixed-use lease has a substantial annual rent, SDLT is payable on both of the following which are calculated separately and then added together:
- the lease premium or purchase price
- the net present value of the rent payable (this is based on the value of the total rent over the life of the lease)
Filing a return and paying tax
You must send an SLDT return and pay the tax within 14 days of completion of the transaction.
Your solicitor, agent or conveyancer might file a return and pay the tax on your behalf.