Latest SDLT Update upon the UK Mini-Budget

Author: Zhong Lun Law Firm

The UK government has unveiled a list of tax cuts in a mini-Budget on 23 September 2022. One of the mini-budget announcements included a cut on the Stamp Duty Land Tax (SDLT).

The Q & A below sets out the details of SDLT reduction:

What is SDLT?

Stamp duty land tax (SDLT) is a tax payable by the purchaser on land transactions in England and Northern Ireland.

When will SDLT cut come into effect?

The changes are effective immediately, from 23 September 2022. (Transactions with effective dates on and after 23 September 2022).

How much will SDLT be reduced?

The stamp duty cut comes in the form of increased threshold. Homebuyers won’t pay stamp duty on the first £250,000.00 of the property sale price, double the threshold before the cut. The rules apply on £425,000.00 threshold for first-time buyers, increasing from £300,000.00. The first-time buyer relief* can be claimed for first-house purchases costing up to £625,000.00, from £500,000.00.

*The purchaser must intend to occupy the property as their only or main residence

How SDLT is calculated?

The amount of SDLT buyers has to pay depends on the sale price and follows a progressive structure. After 23 September 2022, the first £250,000.00 of a property price isn’t subject to SDLT. The portion of the price from £250,001.00 to £925,000.00 incurs 5%, from £925,001.00 to £1,500,000.00 incurs 10%, and above £1,500,000.00 incurs 12%.

Table: Standard and Buy-to-let/second home residential SDLT rates from 23 September 2022

• Standard residential rates only applies if, after buying the property, it is the only residential property you own.

• The buy-to-let/second home rate (3%) apply to purchases of additional properties and are three percentage points above standard residential rates.

• The Non-Resident surcharge applies (2%) to purchasers who have spent less than 183 days in the UK over any consecutive 365-day period before the effective date of the transaction. The surcharge is two percentage points above standard residential rates.

• This is a permanent measure and will apply only in England and Northern Ireland. Stamp duty is not charged in Scotland, instead home purchasers pay Land and Buildings Transaction Tax, with rates set by the Scottish Government.

Example 1:

Local purchaser purchasing his/her first property or replacing his/her existing main residence with a purchase price of £900,000.00:

Example 2:

Local purchaser purchasing his/her buy-to-let or second home with a purchase price of £900,000.00 (Buy to let/second home rate of 3% applies):

To sum up, regardless whether the buyers pay standard or additional SDLT rate, the new SDLT rate would enable them save £2,500.00 SDLT.

How SDLT applies for first time buyers?

First timber buyer relief applies where:

• there is a purchase of a single dwelling;

• the purchase price is not more than £625,000.00;

• the purchaser or, if there is more than one, each of them, is an individual; and

• the purchaser or, if there is more than one, each of them, is a first time buyer, who

• intends to occupy the dwelling as their only or main residence.

First time buyers must also pay stamp duty, but get higher threshold before the levy kicks in. As a result of the new policy, they could be eligible to pay zero stamp duty on the first £425,000.00 of the sale price and 5% on the portion from £425,001.00 to £625,000.00. If the property price is more than £625,000.00, however, first time buyers cannot claim the discount.

Besides, the government is allowing first-time buyers to access the relief when they buy a property costing less than £625,000 rather than the current £500,000.00.

Example:

First time buyer purchasing his/her property with a purchase price of £520,000.00:

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