It’s estimated that one in four Brits overpay on stamp duty when buying a house. From offsetting "chattels" to buying an unconventional home, here's how to make sure you’re paying the correct amount on your property purchase
What is stamp duty?
Stamp duty land tax (SDLT) is what you pay when you purchase a property in the UK.
In England and Northern Ireland, you pay nothing on the first £125,000; 2% between £125,000 and £250,000; 5% between £250,000 and £925,000; 10% on the proportion between £925,000 and £1,500,000 and 12% on anything over £1,500,000.
The rates differ slightly in Scotland and Wales.
If you’re buying an additional property 3% is automatically added on top, although this is refunded if you sell within three years.
There are ways, however, that you can legitimately reduce your stamp duty bill.
"It's estimated that one in four transactions overpay due to the various types or property acquisitions that are incentivised by the UK government," said Shane Mockler, head of new business SDLT at Cap Ex Associates Tax Ltd. "There are almost 50 relief and exemptions available to purchasers of property in the UK."
Many of these are only suitable for developers and traders but several are available to ordinary house buyers.
First time buyer exemption
One of the most common ways of reducing SDLT is if you’re a first time buyer. In this instance, you’re exempt for properties £300,000 and under; between £300,000 and £500,000, you pay 5% stamp duty, but only on the amount above £300,000 rather than the entire price — a saving of up to £5,000 compared to ordinary buyers.
Properties that have a mixed use or commercial element can benefit from a maximum stamp duty band of 5%.
This tends to apply to property bought with farmland or forests but it could also be a flat with a shop attached.
"Every case is different but there needs to be commerciality in place at completion, definitely a written contract and money changing hands," said Will Langmead, landed estates & farms advisor at Middleton Advisors.
"[When it comes to land], it’s not as clear cut as the amount of land there is but what is going on with it. You can have 50-100 acres of farmland that qualifies and 200 acres of land that is more tenuous and doesn’t."
Many vendors look specifically for commercial land because of the tax benefits. "There is a point with the flip in SDLT when the land pays for itself," Langmead said. "But you need a good solicitor on your side."
If the home you are buying is a little out-of-the-ordinary, you might be in for a stamp duty discount or not need to pay it at all.
Homes that "move" and don’t occupy permanent land space, such as caravans, mobile homes and houseboats are all exempt from this tax, no matter what their value.
Properties deemed unsuitable for human habitation might seem a poor prospect, but they have a discounted SDLT, charged at lower, non-residential rates.
But beware, the test of whether a property is uninhabitable or not is a strict one and it must lack basic facilities such as a functioning bathroom, kitchen and heating system. Being in need of modernisation and renovation is not sufficient to get the discount.
Removable fixtures and fittings
A little-known fact is that when you buy a house, SDLT is not applicable to its "chattels".
"Simply defined, chattels are movable objects and cover things such as carpets, curtains, furniture, ovens, fridges and other movable objects that are left in the house by the vendor," said Mockler.
Items such as bathroom and kitchen fittings, and built-in wardrobes, which are attached to the building, would be liable for SDLT.
Previously, buyers have attempted to reduce their tax bill by exaggerating the value of these removable fixtures, but HMRC now expects you to justify this value to them if you plan to offset it.
Multi dwelling relief
If the property you’re purchasing has a self-contained annexe, either separate or integrated, you may be able to treat this as a second property and split the SDLT equally between the main property and annexe, therefore benefitting from lower percentages.
On a £1m house, the stamp duty due is £61,250 but if the house has an annex, this is reduced to two lots of the SDLT on £500,000, equating to £22,500 each, or £45,000 in total — a saving of £16,250.
Much of the confusion around multi dwelling relief surrounds what defines a secondary dwelling. The official definition is that a building or part of a building counts as a dwelling if it is "used or is suitable for use as a single dwelling" on the date of transaction. The reality is that it’s a bit of a "grey area" said Mockler, and is much more nuanced, so needs to be looked at on a case-by-case basis.
As always with property purchases, having a good solicitor and tax advisor, who are up to date with legislation is crucial, but this is especially wise if you plan to make a case to reduce your stamp duty bill.