Is Stamp Duty Payable If I Buy A Derelict Property?

Find out if stamp duty is payable on a derelict property

Is Stamp Duty Payable If I Buy A Derelict Property?

Buying a derelict property to renovate can be a good investment as long as you take into account all the costs. You will need to pay for the property either by cash or by raising a mortgage. It is also necessary to allocate a budget for materials and labour. In addition to these costs there is the matter of tax to be considered and this article will tell you all you need to know about stamp duty.

What Is Stamp Duty?

Stamp Duty is also known as Stamp Duty Land Tax and is a fee levied by HM Revenue and Customs when you buy a property. The fee is charged to the buyer of the property and the amount will depend upon a variety of factors. Stamp duty for all house buyers in the UK was broadly introduced in the 1950s. The rates for stamp duty vary due to location.

Buyers in Scotland pay a Land and Buildings Transaction Tax and in Wales a Land Transaction Tax if the property was purchased after April 2018. In Northern Ireland and England the Stamp Duty Land Tax applies. Over the years the various Chancellors of The Exchequer have made changes to stamp duty that have impacted property and land buyers.

When Does Stamp Duty Apply?

Stamp duty is payable when you buy a property that is freehold. It also applies to property purchased through a new or existing leasehold. You must pay the tax if you buy a property through a shared ownership scheme or if you receive property through a transfer in exchange for payment i.e. if you get a mortgage or buy a part share in a house.

Calculating Stamp Duty

Stamp duty is calculated according to the the location of the property and how much the property costs. New rates were introduced in the UK on 8 July 2020 and will apply until March 31st 2021. Rates start at £500,001 for residential properties and for non-residential properties and land the lower threshold is £150,000. These thresholds will reduce from 1 April 2021 to £125,000 for residential properties and £150,000 for non-residential properties and land.

Current stamp duty rates start to apply at the purchase price of £500,001. The rate for properties costing between 500,001 and £925,000 is 5%. For properties costing between £925,001 and £1.5 million the rate is 10%. Properties purchased at over £1.5 million are taxed at 12%.

Leasehold properties and property transfers are charged at different rates. The amount due will depend on whether the lease is new or whether you take over an existing lease with some years to run. There are different rates for non-residential leases. Details of all the rates can be found on the website.

Property resources:
Stamp duty calculator for England and Northern Ireland
Stamp duty in Wales LTT Calculator

Does Stamp Duty Apply To Second Homes?

Stamp duty is payable on second homes and applies to properties costing £40,000 or more. The extra rate starts at 3%. There is no duty to pay for a caravan, a mobile home or a boat. Rates are applied for the full value of the property. For a property costing up to £500,000 the rate is 3%. From £500,001 to £925,000 the rate is 8%. Between £925,001 and £1.5 million you will be charged 13% and for properties over £1.5 million the rate is 15%. These rates only apply if you have completed the property purchase by 31 March 2021.

Stamp Duty FAQ

Is Stamp Duty Payable Every Time I Move?

Yes, stamp duty applies to the buyer and not the seller. Each time you purchase a property stamp duty will be calculated and is payable within 14 days of completion of the sale.

How Much Is Stamp Duty?

Stamp duty is calculated under rules of HMRC. You can ask your legal adviser about the cost or use the calculator on the website to work out the total cost. If you are in Wales and need to work out the LTT rate for your purchase, the same website also has a calculator for that.

Can I Claim Back Stamp Duty On A Second Property?

Yes, but only if you sell your first property within 3 years of purchasing the second one. Refunds must be claimed within 3 months of the sale of a main residence or within 12 months of filing the Stamp Duty Tax Return.

If you have paid the tax and then sell your first home within 3 years you can claim a refund for the higher rate of stamp duty.

Does Stamp Duty Apply To Fixtures And Fittings?

If you are buying a property that includes some fixtures and fittings it can affect the amount of stamp duty you will pay. Anything that can be removed is deemed to be a chattel and will not be included in stamp duty tax. Items under this category include carpets, white goods (not built in), curtains and blinds, light shades and electric or gas fires that can be removed.

Goods that are considered to be part of thee property are items such as fitted kitchens, central heating systems, burglar alarms and wall mounted ovens. These must be included in the value of the property and as such are liable to stamp duty.

Duty Exemptions

First time buyers who are purchasing a property below £500,000 will not pay stamp duty. Prior to the current stamp duty holiday rates a first time buyer would have paid 0% for the first £300,000 and then 5% up to £500,000. If you are buying under shared ownership terms with a qualifying body, the rates are different and complicated but can be worked out using the calculator on the website.

There are a number of other exceptions including Right-To-Buy transactions, charities purchasing properties and zero-carbon properties. The full list of exemptions can be found on the government website.

Can I Add The Cost Of Stamp or LTT Duty To A Mortgage?

It is possible to add the cost of stamp duty to a mortgage but this will depend upon whether or not your lender will allow you the extra borrowing. Additionally, adding this to a 25 year mortgage will increase the amount of interest you will pay. Extra borrowing can also make a difference to the loan-to-value and could significantly increase the interest rate that the lender charges.

Stamp Duty On Derelict Properties

The cost of stamp duty for derelict properties is complex. Most derelict buildings may be under the threshold value and as such should not attract the tax. If you are buying a derelict property as an addition to a portfolio i.e. it is not your only property, it may or may not be subject to stamp duty. The matter is complicated by whether or not the building is habitable.

Under normal circumstances a property acquired as a second home or one acquired by a company for renovation or to demolish would be subject to the 3% rate. However, a recent court case argued successfully that if the building was not habitable, the additional rate did not apply.

The costs of buying property can easily escalate so determining what stamp duty is payable is essential when you are considering a purchase. If you bear this in mind when looking at property you can work out exactly how much capital is needed.

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