While purchasing property in England or Northern Ireland, if you understand how Stamp Duty Land Tax (SDLT) works could save buyers from costly mistakes or even missed opportunities. Two commonly misunderstood aspects of SDLT involves 3% surcharge for additional properties and a 5% stamp duty surcharge refund.
While these two may sound similar, they apply in different circumstances and serve different purposes with other policies.
What is the 3% SDLT surcharge?
The 3% SDLT surcharge is an additional tax levied on buyers who purchase additional residential property, including buy-to-let investments, second homes, or holiday houses. It was introduced in April 2016 and is applied on top of the standard SDLT rates.
The SDLT surcharge affects individuals who own a property anywhere in the world and buy another one in England or Northern Ireland. This surcharge can significantly increase the cost of acquiring a second property.
Eligibility
Buyers may be eligible for a refund pf the 3% surcharge of they sell their previous primary residence within 36 months of purchasing the new one.
What is 5% Stamp Duty Surcharge Refund?
The 5% Stamp Duty Land surcharge is simply one of the bands of standard SDLT that applies to portions of the property price (usually from £250,001 to £925,000). However, this is not a surcharge and has nothing to do with refunds.
Band
Regular Residential SDLT rates
Residential rates with extra 5%
£0-£125,000
0%
5%
£125,000-£250,000
2%
7%
£250,000-£925,000
5%
10%
£925,000-£1.5m
10%
15%
£1.5m+
12%
17%
Anyone who is buying an additional residential property for $40,000 or more will be subjected to 5% stamp duty surcharge on second homes. This could include a holiday home, a buy-to-ley or even a main residence you plan to live in. Even if you already own just a share in another property, it will count if the share is worth £40,000 or more.
For example:
If you are buying a second home with a purchase price of £300,000, just the extra 5% stamp duty would equate to £15000 (5% of the entire price). This is in addition to the £2500 regular stamp duty on a home of this value which brings to the total payable to £17,500.
The 2% Non-Resident SDLT surcharge
Since April 2021, non-UK residents must pay an extra 2% SDLT surcharge on top of all other applicable rates. If the buyer becomes a UK resident 12 months after the transaction, they may be eligible for a refund of the 2% surcharge. It is also sometimes referred to as @5% surcharge refund, possibly because it applies on top of the 3% second home surcharge and other bands, which leads to a combined rate increase of 5% or more.
Conclusion
Understanding the difference between 3% SDLT surcharge and 5% Stamp Duty Surcharge Refund is important to navigate the UK property market. While both involve paying extra SDLT and other refund opportunities, they apply to different groups of buyers and have distinct conditions.
Clear and concise knowledge of these rules can prevent overpayment and ensure that you are not missing out on a legitimate refund.
