Stamp duty and land tax (SDLT) is a tax paid on the purchase of property and land sales in England (the rules vary slightly in Wales and Scotland and Northern Ireland have their own rules).
If you’re a first-time buyer, you won’t have to pay second-home stamp duty and should benefit from first-time buyer stamp duty rates. Same applies for anyone buying property below the stamp duty threshold or if a property is gifted to you. In some instances, you can even apply for a stamp duty refund.
There are a few opportunities for people to avoid paying stamp and several to legally minimise it, below our property accountants explain more.
How to avoid paying stamp duty
People buying their first property can avoid stamp duty by benefitting from first-time buyer relief, providing the purchase price is below £625,000
Those who are not first time buyers but are buying a property at a price below the stamp duty threshold (since 23 September 2022 at £250,000); are not liable for this tax.
Other ways to legitimately avoid stamp duty include:
- When the property is classified as “non-residential”;
- When gifted a property (where the deeds were transferred mortgage free);
- When bequeathed a property in a will (although Capital Gains tax could apply)
People who manage to haggle down the price of the property can minimise the tax by keeping it within a band where the surcharge is lower.
Beneficiaries of multiple dwellings relief (MDR) can also reduce or minimise stamp duty on all the properties they are purchasing.
Developers of 15 or more properties can minimise stamp duty on all the properties they are developing, so that they do not pay stamp duty on the first purchase from the owner of the land.
If you are transferring properties between companies then you can also benefit from a reduction in stamp duty.
Companies can claim a stamp duty relief when the same group of companies buy property from each other, where both buy and seller are companies.
There are a few ways to avoid paying stamp duty legally, and quite a few to minimise or reduce the tax. Trying out schemes to avoid paying SDLT is not advisable and a serious breach of tax law.
Instead we would recommend speaking to a professional tax accountant such as CloudCo for advice.
What ways are there to minimise stamp duty land tax?
The first-time buyer relief threshold has increased from £500,000 to £625,000 (since 23/9/2022), so if the property you are hoping to buy is below £625,000 then the nil-rate SDLT rate will apply.
For residential properties, first-time buyers will not pay any stamp duty if they buy a property under the value of £425,000 (from £300,000 before 23/9/2022).
The relief is available to purchasers who have not previously owned or had previous financial/ownership in a property.
The property being purchased must be intended as a main residence; e.g. it cannot be claimed against a property being purchased as a buy-to-let or as a holiday home.
You can reduce stamp duty by purchasing the property for a price under the nil-rate or beneath one of the SDLT bands.
Since 23 September 2022, the nil-rate stamp duty and land tax (SDLT) rate has risen from £125,00 to £250,000, which means that you can avoid paying stamp duty if the price of the property you are buying is below £250,000.
Purchase property under the threshold
Even though the nil-rate stamp duty and land tax (SDLT) rate threshold has risen from £125,00 to £250,000, purchasing property under this in most of the UK’s major cities is probably a big ask, but this is a way to avoid paying stamp duty.
Finagling by paying separately for fixtures and fittings (is not advisable …)
Some people try splitting the price of the property and its fixtures and fittings to stay below a stamp duty band or to avoid it entirely.
You might get away with it, but a recent case Orsman v HMRC didn’t end well when the purchaser had to pay the total of £5,024 plus the original stamp duty sum of £2,500 when it was found that the 3% surcharge, which had been avoided due to splitting the £258,000 price (at the time, putting the property into the 3% band) had not been lawful under tax law.
It was found in court that the £8,000 apportioned to “chattels” to avoid the stamp duty band was in fact for fixtures. Therefore, the surcharge was due.
This method is not recommended to try to avoid paying or reduce SDLT.
Multiple dwellings relief (MDR)
MDR reduces the stamp duty on the purchase of property when more than one “dwelling” forms part of a single purchase.
MDR is available to individuals who want to purchase more than one dwelling and it is open to businesses too.
The 3% tax rate applies if the multiple dwellings are purchased in addition to other residential properties owned by the same person or “related persons”.
You should consider seeking advice on MDR from a property tax accountant, lawyer, and/or conveyancer due to the notorious trickiness around these rules.
Learn more about multiple dwellings relief here.
Buying shares in an owning company rather than buying the property itself, can provide a means to reduce or entirely avoid stamp duty.
Offshore company property ownership is becoming far more common, but you should seek expert advice about how this can affect the tax liabilities of the company itself .
Another way to avoid stamp duty on property is to buy a piece of land and build your own property on it, then you’ll only pay SDLT on the price of the land.
Some purchasers negotiate a deal with the developer of a new-build scheme to pay the stamp duty costs on their behalf or do a deal to reduce the purchase price to fall between or below the stamp duty bands.
This is done most often to guarantee the developer a sale.
Why is stamp duty applied to second properties?
Stamp duty is payable on second properties and buy-to-let properties because it will not be a main residence.
The main residence will have attracted the lower or nil rate of stamp duty scales depending on what the property cost at the time of purchase, but the second property will attract the 3% surcharge (depending on the value) at each stamp duty band.
Both second homes and buy-to-lets are treated as second properties.
The same second-home rules apply if you have a second property (holiday home) abroad and want to buy your first property in the UK.
A second home is exempt from the stamp duty surcharge only when:
- The property is valued under £40,000;
- Your share of the second property is valued below £40,000;
- The purchase is of “a moveable property” – i.e., a caravan, mobile home or house boat;
- There is seven years or less left on the lease of the property;
- If the property was inherited as a 50% or less share;
- On divorce or separation.
How do you get SDLT refunds on second property?
If you sell your previous main residence within three years/36 months of buying the second property, you can claim a stamp duty refund on the SDLT surcharge on the second property.
This is a rule designed to assist people who either had trouble selling their first property or needed to move home in a hurry.
It also helps people who have decided to swap their second residence for their main residence; couples who are moving in together; and separating or divorcing couples who co-own property.
How to apply for a stamp duty refund
You can apply for the refund online at gov.uk. Your claim should be processed within about 15 days but you will need to provide a number of details.
- Details about the property that attracted the higher rate stamp duty, the purchase date, the unique transaction reference, and the amount of tax paid on the property;
- Details of the property sold, the date of sale and the name of the buyer;
- Stipulate the sum you are reclaiming as a refund;
- The account number and sort code of the bank account you wish the refund to be made to.
It is always better to go for a minimising or reducing SDLT rather than try to come up with or get involved in a scheme that pretends it can help you avoid it entirely which is outside the legislated rules.
Unless you are certain you know all the rules and the calculations then it would be better to seek the advice of reputable tax accountant such as CloudCo. We will make sure that your intention falls 100% within the rules and/or to look at all the ways the transaction will work for you within the law.
There are quite a few legal ways to minimise what you will have to pay in stamp duty. It all adds up, when you consider that there are other legal ways to minimise all types of taxes through tax planning.
At CloudCo we have experience of this type of legal minimisation of taxes and can advise you and put into action the many ways to reduce your tax compliantly. Contact us to find out more.