Is Stamp Duty Payable on Transfer of Property Between Spouses?
If you transfer a property to your spouse or civil partner there is no specific stamp duty relief for the transfer unless you are...
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The term “stamp duty” refers to a tax that must be paid when purchasing a residential property or piece of land that costs more than £125,000 – or £300,000 for first-time buyers. Those who have not purchased a house or land before also pay reduced SDLT on property costing less than £500,000.
The standard rate of SDLT plus 3% is levied on second homes. This has previously been referred to as the Higher Rate for Additional Dwellings or HRAD.
This particular tax received the name “stamp duty” because, historically, the documents involved were stamped when the relevant amount was paid.
Stamp duty raises around £8 billion annually for the UK Treasury. However, as of the second quarter of 2018, there has been no increase of receipts for SDLT since the third quarter of 2015 – almost three years ago. This stagnation occurred in spite of the top rates for this particular tax recently increasing from 7% to 12% and the introduction of the additional 3% for additional dwellings in 2016.
Looking back further still, receipts in the second quarter of 2018 actually showed a 13.8% drop when compared against those from the same quarter of the previous year, which, in financial terms, equates to a £317 million reduction. When compared to the third quarter of 2015, the difference is still more pronounced, as during that time, transactions dropped by 17.2%.
Between 2016 and 2017, properties in the highest UK tax band accounted for less than 1% of overall transactions across the country. However, they were the subject of a fifth of SLDT receipts.
HMRC reports that SDLT transactions have gradually decreased across consecutive years since 2014, with most recent data revealing a 2.1% drop between 2017 and the first half of 2018.
Twenty years ago, owners of mid-range properties would pay no more than £1,000 of stamp duty across the country. However, this figure has now increased twelve-fold for properties in London and four times over for the rest of the country, with the gap only promising to widen still.
Overall, throughout the last forty years, SDLT receipts have followed a very gradual upward trend, nosediving during times of recession and subsequently recovering to continue their climb.
Between 2023 and 2024, SDLT receipts in England are predicted to rise to close to £16 billion with inflation taken into account – that’s around £14 billion in today’s market.
London generates the largest portion of SDLT revenue in England; it produces around 39% of total receipts annually, which equates to around £4,860 million. It’s also the region that has seen the largest growth in receipts over time, most likely due to the considerable differences between inflation within the city’s housing market and that of the rest of the country, and also the fact that London is home to the largest concentration of property transactions worth £1 million or more – meaning that it is the area most significantly affected by increases in SDLT rates that focus on properties of this value.
Westminster’s local authority sees the most significant value of SDLT receipts from residential transactions at around £594 million, representing approximately 6% of the whole country’s total, while the parliamentary constituency with the largest receipts for residential SDLT is currently Cities of London and Westminster, which sees £464 million worth of receipts – over 10% of all residential SDLT receipts combined.
However, London and the South East no longer has the monopoly within the top ten highest SDLT receipts figures – Manchester, Birmingham and Leeds have now also entered the arena when it comes to non-residential receipts.
In the second quarter of 2018, First Time Buyers’ Relief was called upon to the tune of £125 million, shared between approximately 52,400 buyers.
19% of transactions that took place between the introduction of First Time Buyers’ Relief in November 2017 and the end of that same financial year made use of this kind of assistance, equating to 69,100 transactions in total.
Between 2017 and 2018, around half of First Time Buyers’ Relief was claimed in London and the South East. The full amount paid out is estimated to have been around £159 million. During this time, the average amount of relief awarded per transaction equated to about £2,300, with London sitting at the upper end of the spectrum with an average of £4,300 and Northern Ireland at the bottom with £800. These amounts tend to directly reflect the house prices in eac region.
While 19% of FTBR has been claimed by residents of the South East and 13% by residents of London, the highest number of claims were made by the Birmingham local authority and the highest amount of relief was received by residents of Bristol.
The number of additional dwellings, or second homes, purchased in the UK rose significantly between 2016-17 and 2017-18. The increase hit 19%, representing 252,000 transactions overall. During this same period, HRAD (Higher Rates on Additional Dwellings) rose by 21%, totalling £4,060 million overall, with £1,895 of this amount coming from the 3% increase.
23% of all residential transactions were for additional dwellings, as were 44% of residential receipts, having increased by 4% and 5% respectively since 2017-18.
Purchasing of second homes and additional properties seems to have slowed down since 2015 – likely as a direct result of the implementation of an additional 3% on top of the standard SDLT rate for these types of transactions. The number dropped from 314,800 in the third quarter of 2015 to 260,170 in the second quarter of 2018.
However, receipts are very gradually on the rise, meaning that these figures are liable to be manipulated depending on the political leaning of any given report. For example, according to NAEA Propertymark and their subsidiary firm LCP, tax receipts for 2018 for England, Wales and Northern Ireland have plummeted considerably when compared with 2017’s figures.
There is both a higher proportion of additional dwellings valued at over £1 million and a higher proportion valued at under £250,000 that can be found across other residential transactions, most likely reflecting on the activities of diverse types of property investors.
Currently, 9% of residential properties and 14% of non-residential properties in London are priced above one million pounds, while fewer than 1% of homes and 6% of non-residential properties in Northern Ireland are found within this band. Within both of these sectors, there is a clear gradual decline in the number of properties priced below £250k year on year.
Changes in the market and to the way SDLT works mean that more and more receipts are coming from higher priced properties.
Between 2017 and 2018, 2% of properties sold for over £1 million made up around 31% of SDLT revenue within the residential market.
Properties sold for under £250,000 made up 61 % of transactions and generated just 12% of the receipts that year, while properties worth over £1 million accounted for 3% of transactions and 44% of total SDLT receipts.
SDLT has now been found to be the second most important influence on homeowners who are choosing whether to downsize. Its significance for individuals making this decision has increased exponentially when compared against figures from a decade ago.
The idea of Stamp Duty itself dates back to Italy in the 17th Century, but the system as we currently know it began to take shape in the 1950s. The tax has also been applied to other areas, such as apprenticeship costs, clothes and gambling equipment.
Stamp Duty Land Tax (SDLT) replaced Stamp Duty as the tax paid on property transactions in December 2003 in the Finance Act of that year, when the rules for residential and non-residential properties were also separated.
Within just over three years of Gordon Brown’s appointment as Chancellor of the Exchequer, the top rate of SDLT had risen to 4%. Prior to his entering this post, the amount had remained between 1% and 2% for forty years. With George Osborne claiming the position, the amount increased to 12%, and the additional 3% for HRAD was introduced. These changes have meant a 1,300% increase in stamp duty land tax in under two decades. In 2011, Osborne also introduced a top rate of 5% on properties worth over £1 million. He went on to introduce a 7% increase for properties worth over £2 million, then revised the system so that it became a graded system with an increase to 12% for portions of property worth over £1,500,000.
By to let properties and second homes became subject to the current 3% surcharge in April 2016, meaning that the highest possible SDLT bracket sees second homes facing a 15% rate overall.
The next proposed step, to be investigated by the Stamp Duty Land Tax: non-UK resident surcharge consultation, is the implementation of an additional 1% surcharge for non-UK resident homebuyers in England and Northern Ireland, which is intended to help control the rise of house prices. It has been suggested that the proceeds of this surcharge will be used to tackle the growing issue of rough sleeping – something the government has committed to ending by 2027.
The proposed surcharge would not only affect home buyers from overseas, but also UK-resident companies controlled by overseas shareholders. It would not affect crown employees working abroad, and the surcharge amount paid by any overseas home buyer who subsequently moves to the UK would be refunded.