Factsheet: Stamp duty
guardian.co.uk, Wednesday 20 January 2010 14.48 GMT
Stamp duty is a tax charged by the government when you buy property or shares. There are different kinds of stamp duty, which apply to different purchases.
Stamp duty on homes and land
Stamp duty land tax (SDLT) is levied by the government on the purchase of houses, flats and other land and buildings. The tax, often referred to simply as stamp duty, has existed in various forms since the 1690s.
How much you will pay
The tax is currently graded into four bands and represents a percentage of a property's purchase price.
On properties costing up to £125,000 there is currently no duty to pay. After that there are three stamp duty tiers:
· £125,001 to £250,000 = 1%
· £250,001 to £500,000 = 3%
· £500,001 and above = 4%
The 0% threshold was increased to £175,000 by the government on a temporary basis until the end of 2009.
Your stamp duty bill is calculated on what has been dubbed a "slab structure" rather than being charged on a sliding scale - this means if your property costs between £250,001 and £500,000 you pay 3% of the entire value, not just 3% on the portion that goes over the £250,000 threshold. This is unlike income tax where you pay a different tax rate on different portions of your earnings.
This can make for huge jumps in the tax levied against the price of your house. For example, if you pay £250,000 for your home your stamp duty bill will be £2,500. However, if you pay £250,001 you jump to the 3% band and your tax bill trebles to £7,500.03.
Minimising your bill
Rather than buying somewhere for a price just over one of the thresholds and facing a large bill, it might seem like a good idea to agree a lower purchase price and a separate price for items such as the carpets and curtains.
However, since 2003 purchasers have been expected to fill in a Land Transaction Return form. This is a complicated six-page document of 70 questions, outlining in detail the nature of the transaction (click here for a sample copy). This is designed to weed out instances where a property price has been kept artificially low.
Stamp duty-free properties
There is no stamp duty to pay on properties costing up to £125,000.
Since 1 October 2007, zero-carbon homes have also been subject to different rules. All qualifying properties changing hands for up to £500,000 are exempt from the tax, while those valued at more than £500,000 have £15,000 knocked off their stamp duty bill.
For the purpose of stamp duty relief, a zero-carbon home means a home that is energy efficient in terms of heat loss, C02 emission rate and net C02 emissions. However, the regulations only stand until 30 September 2012, and buyers of a second-hand zero-carbon home will not qualify for the
tax relief.
In 2005, the government introduced something called disadvantaged areas relief in the hope of stimulating residential sales and regenerating certain locations. A property in one of these designated areas that costs less than £150,000 is free from stamp duty.
Paying the tax
SDLT is a self-assessed tax, so it is the responsibility of the individual buyer to ensure that they have accurately calculated and paid their liability. However, in reality most of this will be carried out as part of the duties of the buyer's solicitor. He or she will generally complete the Land Transaction Return form, supplied by HMRC, and pass this on to the buyer to be read and signed.
The tax must be paid within 30 days of the effective date of the transaction, which in most circumstances is the date of completion on the property. Once the Land Registry has received a certificate from HMRC that the duty has been paid, it will register the new ownership of the property.
Stamp duty on shares
Stamp duty is also payable on shares. If you buy them through a stockbroker the transaction is usually "paperless" and carried out via the electronic settlement and registration system, known as Crest. For these transactions you would pay a stamp duty reserve tax (SDRT).
SDRT is charged at a flat rate of 0.5% of the amount you pay for your shares, and is rounded up to the nearest penny. Your stockbroker will take care of paying the tax, and will subsequently bill you.
If you invest in a unit trust or an open-ended investment company (OEIC), the fund managers pay the SDRT. This is taken into account when the unit price is set.
If you use paper stock transfer forms for buying shares you will pay plain stamp duty, not SDRT. This is also charged at 0.5%, but is rounded up to the nearest £5. You are responsible for paying stamp duty to the HMRC directly.
Visit direct.gov.uk for more information on stamp duty on shares.
guardian.co.uk, Wednesday 20 January 2010 14.48 GMT
Stamp duty is a tax charged by the government when you buy property or shares. There are different kinds of stamp duty, which apply to different purchases.
Stamp duty on homes and land
Stamp duty land tax (SDLT) is levied by the government on the purchase of houses, flats and other land and buildings. The tax, often referred to simply as stamp duty, has existed in various forms since the 1690s.
How much you will pay
The tax is currently graded into four bands and represents a percentage of a property's purchase price.
On properties costing up to £125,000 there is currently no duty to pay. After that there are three stamp duty tiers:
· £125,001 to £250,000 = 1%
· £250,001 to £500,000 = 3%
· £500,001 and above = 4%
The 0% threshold was increased to £175,000 by the government on a temporary basis until the end of 2009.
Your stamp duty bill is calculated on what has been dubbed a "slab structure" rather than being charged on a sliding scale - this means if your property costs between £250,001 and £500,000 you pay 3% of the entire value, not just 3% on the portion that goes over the £250,000 threshold. This is unlike income tax where you pay a different tax rate on different portions of your earnings.
This can make for huge jumps in the tax levied against the price of your house. For example, if you pay £250,000 for your home your stamp duty bill will be £2,500. However, if you pay £250,001 you jump to the 3% band and your tax bill trebles to £7,500.03.
Minimising your bill
Rather than buying somewhere for a price just over one of the thresholds and facing a large bill, it might seem like a good idea to agree a lower purchase price and a separate price for items such as the carpets and curtains.
However, since 2003 purchasers have been expected to fill in a Land Transaction Return form. This is a complicated six-page document of 70 questions, outlining in detail the nature of the transaction (click here for a sample copy). This is designed to weed out instances where a property price has been kept artificially low.
Stamp duty-free properties
There is no stamp duty to pay on properties costing up to £125,000.
Since 1 October 2007, zero-carbon homes have also been subject to different rules. All qualifying properties changing hands for up to £500,000 are exempt from the tax, while those valued at more than £500,000 have £15,000 knocked off their stamp duty bill.
For the purpose of stamp duty relief, a zero-carbon home means a home that is energy efficient in terms of heat loss, C02 emission rate and net C02 emissions. However, the regulations only stand until 30 September 2012, and buyers of a second-hand zero-carbon home will not qualify for the
tax relief.
In 2005, the government introduced something called disadvantaged areas relief in the hope of stimulating residential sales and regenerating certain locations. A property in one of these designated areas that costs less than £150,000 is free from stamp duty.
Paying the tax
SDLT is a self-assessed tax, so it is the responsibility of the individual buyer to ensure that they have accurately calculated and paid their liability. However, in reality most of this will be carried out as part of the duties of the buyer's solicitor. He or she will generally complete the Land Transaction Return form, supplied by HMRC, and pass this on to the buyer to be read and signed.
The tax must be paid within 30 days of the effective date of the transaction, which in most circumstances is the date of completion on the property. Once the Land Registry has received a certificate from HMRC that the duty has been paid, it will register the new ownership of the property.
Stamp duty on shares
Stamp duty is also payable on shares. If you buy them through a stockbroker the transaction is usually "paperless" and carried out via the electronic settlement and registration system, known as Crest. For these transactions you would pay a stamp duty reserve tax (SDRT).
SDRT is charged at a flat rate of 0.5% of the amount you pay for your shares, and is rounded up to the nearest penny. Your stockbroker will take care of paying the tax, and will subsequently bill you.
If you invest in a unit trust or an open-ended investment company (OEIC), the fund managers pay the SDRT. This is taken into account when the unit price is set.
If you use paper stock transfer forms for buying shares you will pay plain stamp duty, not SDRT. This is also charged at 0.5%, but is rounded up to the nearest £5. You are responsible for paying stamp duty to the HMRC directly.
Visit direct.gov.uk for more information on stamp duty on shares.
Comment