Why Stamp Duty Land Tax Might Need To Be Reformed
Stamp Duty Land Tax (SDLT) is the bane of property buyers in the UK. It is paid on every property purchase worth more than £250,000, and more people are being forced to pay it each year as the thresholds stay the same while property prices rise. The number of transactions under this lowest threshold has fallen to just 25.5% in the first quarter of this year, compared to 62.5% of transactions back in Q1 2014, according to research from Coventry Building Society.
Almost half (47.5%) of property purchases were between £250,000 and £500,000 in Q1 2024 which suffer 5% SDLT, with the average amount paid reaching £9,038 – around £3,000 more than the average 10 years ago. Back in 2014, around 28% of buyers were paying 5%.
Now, one in five (21.3%) first time buyers are paying SDLT, while the number of additional property transactions – such as Buy-to-Let properties – has fallen to 43,800 in Q1 2024. This will ultimately have an impact on the amount of rental property available, which will also push up rents, making it harder for people to find a home.
Non-residents pay an additional 2% SDLT on a purchase in the UK, and if this is a Buy-to-Let or second property, then they will also pay an additional 3% SDLT charge. This additional 3% charge must also be paid by anyone buying rental property, which is also helping to slow down the purchases for these buyers too.
It is for these reasons and more that property experts are suggesting SDLT should be reformed, to help grease the wheels of the property market, which has stagnated somewhat in the last year or so.
Temporary threshold changes aren’t the solution
Jonathan Stinton, Head of Mortgage Relations at Coventry Building Society, said: “The right changes to Stamp Duty could make a huge difference to homebuyers and the wider economy; it could not only put money back in the pocket of purchasers, it could also oil the wheels of the market and make it easier for people to move up and down the ladder throughout their lifetime.
“The go-to solution has been temporarily changing the thresholds, but there’s a risk that they become out of sync with house prices in a few years, and they don’t address other issues like support for downsizers or the significant upfront cost for those investing in rental properties. A considered, longer-term review, and implementing the findings, would have a greater and longer-lasting benefit to buyers and sellers.”
Is there a way to reduce my SDLT legitimately?
There is little you can do to mitigate SDLT, as it is charged on the purchase price of the property once that is agreed. But there are some temporary reliefs in place for certain buyers that are helping to reduce the liability currently.
For first time buyers, the threshold before SDLT is charged sits at £625,000 until March 31, 2025, at which point the Government is expected to repeal the benefit. This extra threshold was not previously open to those first-time buyers who were buying a property through a nominee or bare trust, which is often used by domestic abuse victims who don’t want their former partner to be able to find their address.
However, from March 6 this year, the rules have changed, and now any of these transactions that are completed after this date will be able to benefit from this additional relief. If contracts are exchanged before this date, but complete on or after that date, then transitional rules will apply. Your accountant can give you more details on this.
There has been another change which is in effect from June 1, 2024, when the Multiple Dwellings Relief (MDR) is abolished, meaning anyone in England and Northern Ireland can no longer claim additional relief if they buy more than one property in a single transaction. MDR allowed the buyer to pay SDLT based on the average price of the properties purchased. From June 1, their SDLT bills will be higher.
If contracts were exchanged before March 6, 2024, and do not vary before completion, then the relief will still apply even if the sale is completed after June 1.
We can help you
SDLT has become much more complicated in recent years, so if you need help to make sure you are paying the right amount of SDLT, then please get in touch with us and we will be happy to help you.
