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For many home buyers, the nine-month stamp duty holiday has been a rare bright spot in an otherwise pandemic-darkened year.
Yet what stamp duty relief may mean for home buyers has not always been clear, particularly for those who own, or are considering buying, a second home.
Before exploring what effect that may have on your circumstances, let’s back up for a moment.
In an effort to help encourage home buyers suffering the ill financial effects of the COVID-19-induced economic downturn, Chancellor of the Exchequer Rishi Sunak announced that the government would suspend stamp duty land tax (SDLT) on the initial £500,000 of all England and Northern Ireland property sales from 8 July until 31 March 2021.
What is stamp duty land tax?
It’s a tax that the government levies on purchases of houses, flats, and other land and buildings in England and Northern Ireland.
It has a different name in Scotland, where it’s called the Land Building Transactions Tax (LBTT), and Wales, where it’s labelled the Land Transaction Tax(LTT) for sales completed on or after 1 April 2018.
Stamp duty tax applies when you buy a freehold property, a leasehold, a property through a shared ownership scheme, or if you are transferred land or property in exchange for payment, such as taking on a mortgage.
It normally applies to anyone buying a main residence, whether they’re a first-time buyer or have previously owned a property.
However, stamp duty doesn’t usually apply to purchases of caravans, mobile homes, or houseboats. If in doubt, check HMRC’s site.
How much is the stamp duty tax?
The amount you pay varies on where you live and the price of the property.
In typical – that is, non-COVID-19 – times, you pay stamp duty if you buy a residential property for more than £125,000, as long as it’s your main residence, or a non-residential land or property for more than £150,000.
How much money will the tax holiday save me?
But the stamp duty tax holiday has changed that – for now.
Until 31 March 2021, you won’t pay stamp duty on primary residential properties that cost less than £500,000.
More expensive properties are only taxed on their value above £500,000: 5% tax is applied for the portion of the price between £500,001 and £925,000, and then 10% on the next portion (£925,001 to £1.5m). Anything over £1.5 million is taxed at 12%.
That means you can save up to £15,000 if you buy a home during the stamp tax holiday.
However, the stamp duty relief does not apply to non-residential properties.
Industry groups want an extension of the stamp duty holiday, but as of late November 2020 the government have not indicated that they’re willing to do so.
To determine how much you’ll need to pay, check out the government’s stamp duty calculator here.
How are Scotland and Wales different?
However, those specific types of stamp duty relief only apply in England and Northern Ireland.
The savings in Scotland and Wales are less significant, with taxes only temporarily waived on home purchases up to £250,000.
Does stamp duty apply to second homes?
Outside of the stamp duty holiday, if you’re a landlord or otherwise buying a second home, you’re required to pay a 3% surcharge on top of the normal rates.
Some second-home purchases are exempt from stamp duty altogether, however.
If the value of your second home, or the share of the property you buy, is less than £40,000, you don’t need to pay the tax. Purchases of caravans, mobile homes, or houseboats are also exempt. But second home buyers currently benefit from stamp duty relief as well.
These buyers only need to pay the extra 3% of stamp duty they were charged under the previous rules on top of the new rates.
That means that until 31 March 2021, second home buyers will be charged a 3% stamp duty tax on purchases up to £500,000, 8% for purchases between £500,001 and £925,000, 13% on £925,000 to £1.5 million, and 15% on purchases over £1.5 million.
What happens in case of divorce?
Different rules apply in the event of divorce, separation, or the breakdown of a civil partnership.
A married couple or civil partnership is treated as a single unit for the purposes of the stamp duty tax until the parties obtain a court order of legal separation or finalised divorce.
Generally, in those cases you don’t need to pay stamp duty if you’re transferring a proportion of your home’s value to your former partner. But sometimes payment of stamp duty is necessary if the property being transferred is subject to a mortgage, for instance.
Stamp duty is also payable in cases when one spouse buys a new property for their primary home, effectively replacing their primary residence. However, even if this individual retains an interest in the house they’re leaving, their new property acquisition should not be charged second home stamp duty rates.
But it’s important to note that if you buy another property before your divorce is finalised, you’re liable to the 3% second home stamp duty surcharge.
A refund can be claimed if, once the divorce is finalised, the first home is sold within three years.
For advice for your specific situation, we’d recommend talking to a family law solicitor.
How can I claim a stamp duty refund?
You can claim a refund in some instances.
The most common occurrence comes if you sold your previous primary residence within three years of purchasing your new home. In that case, you can apply for a refund of the amount you paid above the normal stamp duty rates, had your new house not been an additional property.
You’re required to submit your claim to HMRC within three months of the sale or within a year of the date on which the stamp duty was filed on the purchase, whichever comes later.
To apply for a refund, you’ll need to complete a stamp duty return and send it to HMRC. To make a claim, visit the HMRC site
Are there other ways to avoid stamp duty?
There are limited cases when you’re exempt from stamp duty.
For instance, you won’t have to pay the tax if you received land or property in exchange for payment, or in other specific, legally-mandated situations, such as divorce proceedings.
You’re similarly exempt if a property is left to you in a will. In that case, you’ll need to pay inheritance tax instead. Generally, though, stamp duty is a fact of property sales.
Unlawful attempts to avoid it can result in stiff penalty fees.
Stamp duty can sometimes feel like a headache, but usually your solicitor will deal with your return and any payment, though can you do it yourself.
Learn more about what conveyancers do with our handy guide. Head there now.
GetAgent recommends checking with a qualified, independent solicitor if you have further questions about your individual situation.
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