When you buy a house or land in the UK, there is a special tax that you will have to pay known as Stamp Duty Land Tax or SDLT. SDLT, what is it all about? How is it calculated? And many other common questions about it will be answered here.
Stamp Duty Land Tax (SDLT)
A Stamp duty is a tax paid when buying a property or share in the UK. It depends on the property value and the buyer’s situation.
- Stamp Duty Land Tax (SDLT): This applies to purchases of land or houses.
- Stamp Duty Reserve Tax (SDRT): This applies to purchases of shares electronically.
How to Calculate Stamp Duty Land Tax?
Stamp Duty Land Tax (SDLT) is payable when buying a house or land. Here is a simplified work:
Threshold Below £125,000 = No SDLT; if the house costs above £125,000, you will pay SDLT on the amount exceeding this threshold.
Rates: The SDLT rates are gradual; the higher the price of the house, the higher the rate.
For example, on the purchase of a house costing £350,000, the off-the-shelf part will charge 0% on the first £125,000, 2% on the next £125,000, and 5% on the balance of £100,000.
Example:
Facility Price: £350,000
SDLT Calculation:
0% on the first £125,000= £0
2% on the next £125,000= £2,500
5% on the last £100,000= £5,000
Total SDLT= £7,500
What is Stamp Duty Reserve Tax?
Stamp Duty Reserve Tax (SDRT) is an electronic tax on share purchases. This kind of tax does not ask for stamping a document with a paper stamp. Such cases are usually 0.5% of the share purchase price.
An Example:
Share Purchase Price: £1,000
Calculation for SDRT: 0.5% of £1,000 = £5
Total SDRT: £5.
How Much is Stamp Duty Land Tax?
SDLT depends on the price of the house and whether that house is primary or secondary. A house bought worth £350,000 as a main home is charged the SDLT as above. But, if it is the second home, you would incur an additional 3% on top of the usual rates.
Is Stamp Duty Tax Deductible for CGT?
The gains tax is the former capital gains tax applicable as profit brought forth through sales of shares and houses. Stamp duty is indirectly not deductible from CGT but may form part of the cost of a property for the calculations of CGT. In doing so, it can minimize the yield profit, which in turn minimizes the amount of CGT tax payable.
Can You Deduct Stamp Duty from Capital Gains Tax?
Stamp Duty may not be deducted directly from CGTs but will be added to the asset cost. Buying a house for £200,000 in December and also paying £10,000 in SDLT means the total cost is £210,000; this will represent the amount at which it will be sold at £300,000 with a profit of £90,000 taxable under CGT.
Is Stamp Duty Tax Deductible for a Limited Company?
Generally, stamp duty is not a deductible business expense for Limited Companies. However, stamp duty can be capitalized in an asset’s cost, affecting the asset’s depreciation or CGT charge.
Essential Documents for SDLT Refund
The following documents are required to claim a Stamp Duty Land Tax (SDLT) refund:
- SDLT5 Certificate– Evidence of SDLT paid with a Unique Transaction Identifier.
- Evidence of Disposal – A proof document showing you sold your previous home (sale contract).
- SDLT Return – Copy of the original tax return.
- Completion Statement – Full details of property purchase.
- Proof of Payment – Bank statement or payment receipt.
- Personal Details – National Insurance number and contact information.
- UTR Number – It comes from your SDLT return.
- Bank Details – For the refund to be paid into your account.
You can submit these online through the HMRC portal or by post, using the SDLT16 form.
Latest News and Updates
New Rules for First-Time Buyers
From April 2025, SDLT will be introduced for properties worth up to 3000 for first-time buyers. This is lower than the previous. 450000 limit. More people may now have to pay SDLT.
House prices and SDLT:
In December 2024, the price of houses increased in the United Kingdom by 0.7% with the annual increase amounting to 4.7%. Changes in the rates of SDLT will impact house prices as buyers and sellers get to the adjustment of their costs.
Is Stamp Duty Tax Deductible?
No, Generally, for income tax and capital gains tax (CGT) purposes, stamp duty land tax (SDLT) is not tax-deductible. However, in cases when the tax is incurred on a commercial property transaction, SDLT could be treated as a taxable capital expense and be subtracted in the calculation of CGT when selling the property. You should seek specific advice from a qualified tax practitioner on this issue.
Conclusion
Stamp duty is a major tax affecting a variety of purchases, such as houses and shares. Understanding how stamp duty works will help with pre-planning the buying and selling of various assets. Knowing the complexities of SDLT or SDRT could save you money and prevent unhappy consequences.
FAQs
What is Stamp Duty Reserve Tax?
SDRT is the tax applied to the electronic transfer of shares that is generally 0.5% of the purchase consideration paid.
Can I deduct Stamp Duty from Capital Gains Tax?
You cannot deduct it, but you can add it to the cost of the asset to reduce CGT.
Is Stamp Duty the same as Land Tax?
No, Stamp Duty Land Tax is for land purchases in the UK, whilst Land Tax can refer to other taxes.
Can Stamp Duty be claimed as a tax deduction?
No, it cannot be claimed as a tax deduction but can accrue to the capital cost of an asset for CGT.
Is Stamp Duty tax deductible for a Limited Company?
Generally, not deductible as an expense but can be capitalized as part of an asset’s cost.
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