Stamp taxes in a nutshell
There are a number of UK stamp taxes which apply to transactions involving real estate and stocks and marketable securities, which include:
- stamp duty land tax (SDLT), applying broadly to transactions in land interests situated in England and Northern Ireland (separate regimes apply to transactions that take place in Wales and Scotland, see below)
- stamp duty, broadly charged on instruments (for example, a stock transfer form) that transfer UK shares and certain other securities
- stamp duty reserve tax (SDRT), broadly applying to electronic (or paperless) transfers of UK shares and certain other securities
What is stamp duty land tax (SDLT)?
Stamp duty land tax (SDLT) is generally payable on the purchase or transfer of interests in land and buildings in England and Northern Ireland where the amount paid is above a certain threshold.
From 1 April 2015, land and buildings transaction tax (LBTT) applies to land transactions in Scotland and from 1 April 2018, land transaction tax (LTT) applies to land transactions in Wales. Whilst the underlying rules applying to LBTT, LTT and SDLT are broadly similar in nature, the taxes are not identical. The rest of this summary covers the law that applies to transactions in England and Northern Ireland.
The SDLT payable is in most cases based on the amount or value of the consideration given for the asset acquired. The rate of SDLT depends on whether the property is exclusively residential or includes non-residential property. If the property is exclusively residential then the SDLT is determined at graduated rates applying to each band of the chargeable consideration. Higher rates of SDLT may apply to acquisitions of residential property where the purchaser already owns another dwelling (and is not replacing their main dwelling) or is a company.
A 15% rate may also apply to acquisitions of residential property where the chargeable consideration is over £500,000 and the property is being purchased by companies or certain other non-natural persons.
A further surcharge will apply on purchases of residential property in England and Northern Ireland by non-residents from 1 April 2021.
What is stamp duty?
Stamp duty is a tax on documents. Following the introduction of SDLT, and subsequent deregulation measures, stamp duty is in practice almost exclusively restricted to instruments transferring unquoted shares in UK registered companies.
The duty is levied at 0.5% of the amount or value of the consideration for the transfer, rounded up to the nearest £5. If the consideration is less than £1,000 then generally the document does not require stamping.
What is stamp duty reserve tax (SDRT)?
- SDRT is a tax on agreements to transfer chargeable securities, the main categories being:
- shares in UK registered companies
- securities derived from such shares
- certain types of debt with equity characteristics
The charge is generally levied at 0.5% of the amount or value of the consideration for the transaction, though a higher rate of 1.5% can apply for certain financial market transactions.
Transactions in shares and interests in shares which are traded on a recognised growth market are generally not subject to SDRT. The Alternative Investment Market (AIM) is currently included as such a market.
Are there any reliefs from SDLT?
There are various exemptions and reliefs available (usually subject to conditions) to reduce or exempt a charge to SDLT some of which are listed below:
- group relief
- reconstruction relief for corporate demergers
- acquisition relief on the acquisition of property that is part of a trading undertaking for the issue of shares
- multiple dwellings relief which broadly operates by restricting the rate of SDLT on the acquisition of a portfolio of residential property by reference to the average price per dwelling
- certain acquisitions of residential property by house builders and property traders such as chain breaking and part exchange
- gifts of land or property
- exchanges on divorce or civil partnership dissolution
- assents and appropriations by personal representatives
There are also several exemptions from the higher rates of SDLT.