Why You Need To Understand Stamp Duty And Tax

Close-up Photo of Handwritten Letters with Stamps

When you sell your home, why do you need to understand stamp duty and tax in the UK?  What is Stamp Duty Land Tax?  What is Capital Gains Tax?  Do you need to understand these terms when buying and/or selling a home in the UK?

Stamp Duty Land Tax (SDLT)

If the property is worth £250,000 or more, you will want to be familiar with Stamp Duty Land Tax because you will likely to asked to pay it.  If you are buying a home for the first time, you will not need to pay SDLT unless the value is above £425,000.  These rates can change so attention will need to be paid to see if any rules or restrictions have been revised.  Property in Scotland and Wales have slightly different rules and regulations regarding the tax.

The tax is payable when you purchase a new or existing leasehold; if you are transferred land or property in exchange for payment (i.e., mortgage); buy a freehold property; or purchase a property through a shared ownership scheme (usually involving a public entity).

How much tax you pay relates to whether the property or land will be used for residential, non-residential, or mixed-use purposes.  It is also affected by whether the property is eligible for an exemption or for relief.  A Stemp Duty Land Tax return must be filed even if it is discovered that you are eligible for some form of relief.

SDLT reliefs can be offered for first-time buyers; owners of multiple homes or properties; employers when purchasing an employee’s house; building companies purchasing an individual home; Crown employees; when purchased by a charity for charitable purposes; registered social landlords; those developers who offer community amenities; and property investment funds, just to name a few scenarios.

You do not have to pay SDLT or file a return if no payment changes hands or if you have left the home in a will.  Likewise, no SDLT is necessary if a property is transferred due to divorce or if you purchase a property for less than £40,000.  Check with the HMRC’s (HM Revenue & Customs) guidance to learn about all the possible scenarios under which you can avoid paying Stamp Duty Land Tax.

Capital Gains Tax

When selling a home, you will not need to pay Capital Gains Tax if: 1) you have lived in the home for the entire time you have owned it; 2) you have not let part of it out or used part of it entirely for a business venture; and 3) if the property in total is smaller than 5,000 square metres.  In the above three instances, you will automatically receive a tax relief, known as the Private Residence Relief.  If you do not meet all three criteria, it may be necessary to pay some portion of a Capital Gains Tax.

When working with a property purchasing company, all these matters can be taken care of for you.  You need not wrestle with these rules and regulations on your own.

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