Tax Category Tax: calculations, VAT, self-employment tips and more

What is stamp duty exemption

Stamp duty exemption is a government tax exemption on the purchase price of U.K. properties.

People who buy land or properties in the U.K. are obliged to pay what is known as Stamp Value Land Tax to the Inland Revenue. However,at the time of publication, you do not pay this if the property you are purchasing costs less than £125,000.

A £120,000 threshold was introduced by the government in 2005, replacing the previous £ A60,000 tax limit, to help struggling home and business owners cope with spiralling property prices. The threshold further increased to £125,000 in 2006.

Tax threshold

At the time of publication, properties or land with a purchase price of up to £125,000 are exempt from stamp duty. People who have previously owned a flat or house in the United Kingdom are entitled to this exemption. Although stamp duty exemption eases the financial burden for people buying cheaper properties, critics say that it doesn't realistically reflect property price inflation and have called for it to be brought into line with income tax.

This would mean that property buyers would only pay tax on amounts exceeding the existing thresholds, rather than being taxed on the property's overall value. Someone who, for example, buys a property that sells for just a few pounds over the threshold, still has to pay 3 percent of the overall purchase price.

First-time buyers

At the time of publication , first-time buyers who haven’t previously owned a U.K. property, don’t pay any Stamp Duty Land Tax on properties that sell for up to £250,000. This higher threshold, introduced in 2010, was set to continue until March 25, 2012.

Property values

The percentage of Stamp Duty Land Tax levied on properties exceeding the £125,000 or £250,000 thresholds varies, depending on the property’s overall purchase price. Properties valued between £250,000 to £500,000 incur a tax of 3 percent of the total purchase price; those valued between £500,000 to £1 million incur a 4 percent tax, and properties valued at over £1 million have a 5percent Stamp Value Land Tax.

The Conveyancing Process

The application process for Stamp Duty Land Tax exemption is normally overseen by the solicitor handling the purchase. The solicitor completes a Land Transaction Return form to send to the Inland Revenue on her client’s behalf.