Stamping Out Stamp Duty
Stamp Duty is the short term used for Stamp Duty Land Tax (also known as SDLT). Stamp Duty was first introduced in England in 1694 but its current form was introduced on 1 December 2003.
It is essentially a tax on all land and property transactions paid by the buyer of a property and the amount of stamp duty is dependent on the purchase price. Currently, it is paid on a property costing over £125, 000.
Stamp duty must be paid within thirty days of what is called the “effective date”. This is usually the date of completion but can be earlier in limited circumstances. For example, if a buyer moves into a property before completion or pays the full price before completion.
Be aware that stamp duty is payable even if no cash changes hands! For example, a property swap or transferring the property between relatives. An exception to this is when a spouse is transferring their share of a property to the other on separation or divorce.
A stamp duty tax return must be submitted to the Inland Revenue within thirty days of completion. This is the buyers’ responsibility albeit many solicitors assist with completion of the return as it can be difficult to complete. Again, be aware that even if a property does not attract SDLT (for example, the price is less than £125, 001), a return must still be completed. If it is not submitted on time, a fixed penalty of £100 is payable and if applicable, interest is charged.
The current rates for SDLT are as follows:
Purchase price of up to £125, 000 0%
Purchase price of £125, 001 to £250, 000 1%
Purchase price of £250, 001 to £500, 000 3%
Purchase price of £500, 001 to £1m 4%
Purchase price of £1, 000, 001 to £2m 5%
Over £2m 7%
Some buyers try to use tactics to lesser their burden. by claiming that the price paid includes an element for fixtures and fittings charged for separately. For example, say a sold price is £525, 000 but a buyer doesn’t want to pay 4% tax so claims £28, 000 is for fixtures and fittings and thereby attempts to state the actual property price is £497, 000 which attracts stamp duty at 3%. In this example, the buyer would save £6, 090 if successful. Tactical moves like this are viewed as tax invasion and the Inland Revenue can within nine months of the tax return being submitted raise queries.
SDLT is viewed by many industry commentators as an unfair tax and in particular the way it works on a “slab” basis. Is it really fair that a buyer pays 1% if the property is £250, 000 yet a penny more and 3% on the whole price? Many commentators view the current regime as restrictive and damaging to the housing and economic recovery.
The government did introduce a holiday scheme for first time buyers on properties worth up to £250, 000 for 2 years which ended in March 2012 but it did little to help people get onto the property ladder.
Reformists generally suggest a progressive rate of tax. For example, if a purchase price is £275, 000, 0% should be payable on £125, 000, 1% should be charged on the amount between £125, 001 o £250, 000 and 3% on the amount between £250, 001 to £275, 000. However, an influential group of Conservative MPs has called for stamp duty to be scrapped altogether for properties worth less than £500, 000.