Who Pays Stamp Duty: Buyer vs. seller responsibilities
In real estate transactions, the responsibility for paying stamp duty typically falls on the buyer. Stamp duty, also known as land transfer duty, is a state government tax on property transactions. The buyer is required to pay the stamp duty based on property type, buyer’s status where both affect stamp duty payment responsibility, and until this payment is made, they do not receive the title to the property. The seller is not responsible for paying stamp duty, although the tax can indirectly affect them.
The application of stamp duty and its rates vary globally, often depending on the status of the transferee. For example, in some jurisdictions, there are different rates for local residents (“Belongers”) and non-residents (“Non-Belongers”). In such cases, Non-Belongers might pay a higher rate of stamp duty on land transfers compared to local residents.
Here are some examples of how stamp duty is applied:
- United Kingdom: The UK has a tiered system where the amount of stamp duty depends on the property value.
- 0% on the first £425,000 of the property price
- 5% on the portion between £425,001 to £925,000
- 10% on the portion between £925,001 to £1.5 million
- 12% on the remaining amount above £1.5 million
These examples illustrate that while the buyer generally bears the responsibility for paying stamp duty, the specifics can vary greatly depending on the location and circumstances of the property transaction.
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Stamp duty in property transactions
Stamp duty is a tax paid on property purchases in certain countries.
To complete a property purchase, the buyer pays stamp duty to the government based on the sale price. The stamp duty must be paid before the property sale can be legally registered. Stamp duty rates vary by location but are often between 1-12% of the purchase price.
Higher valued properties generally have higher stamp duty rates. First-time home buyers may get stamp duty relief. Stamp duty helps governments collect revenue from property transactions and can also be used to control housing market growth. It is a key cost consideration for real estate investors comparing different global property markets.
Where stamp duty is paid in the world?
Here is a summary of where stamp duty is paid on property purchases around the world:
- Australia – Stamp duty is paid by the buyer and varies by state, generally around 3-4% of the property value.
- Canada – No stamp duty, but a tax on property occupation. Foreign buyers banned as of Jan 2023, with some exceptions.
- Dubai, UAE – Registration fee of 4% paid on property transfers, typically split between buyer and seller.
- France – Property transfer tax paid by buyer, rates vary from 2-12% depending on location and transaction type.
- Hong Kong – Stamp duty paid by buyer, rates range from 0.1% to 15% depending on property value and buyer residency status.
- Italy – Tax of 2-9% of property value paid by buyer. Lower rate of 2% for primary residences.
- Japan – 3% of property price plus fees paid by buyer.
- Portugal – Stamp duty of 0.8% of property’s fiscal value paid by buyer.
- Singapore – Rates vary significantly based on buyer citizenship and residency status, from 5% to 30%.
- Spain – Stamp duty of 1.5% of purchase price paid by buyer.
- Thailand – 0.1% of sale price or value paid by buyer or split between parties.
- UK – Stamp duty paid by buyer, rates vary from 0% for first time buyers up to 12% for most expensive properties.
- USA – No stamp duty.
How stamp duty laws differ geographically
While stamp duty exists in many countries, the specific laws and regulations can vary enormously based on the local requirements and policies. Consulting the rules for any jurisdiction you are considering transacting in is essential.
Stamp duty laws can vary significantly between different countries and jurisdictions. Some key differences include:
- Payment responsibility – In some places the buyer pays stamp duty, while in others it is split between buyer and seller.
- Rates – The rates of stamp duty charged on property purchases differ widely. Some places have flat rates, while others use sliding scales based on property value. Rates range from 0% in certain U.S. states to as high as 15% for foreign buyers in Singapore.
- Thresholds – The minimum property value threshold at which stamp duty kicks in also varies. In the UK it starts at £125,000, while in Australia it ranges from $5,000 to $1 million depending on the state/territory.
- Concessions – Some jurisdictions offer stamp duty concessions or exemptions for certain buyers, like first-home buyers, pensioners, etc. Others do not offer any concessions.
- Scope – The types of transactions or assets subject to stamp duty differ. Some focus just on real estate transfers, while others also tax share purchases, leases, loans, etc.
- Administration – Some jurisdictions require physical stamps on documents, while many modern systems are electronic/digital. Payment deadlines also differ.
Financial Impact of Stamp Duty on Buyers
The person or company purchasing real estate in a real estate transaction is responsible to pay stamp duty and that bears a financial impact on them. The extent of this burden depends on several factors, including the rate of the stamp duty, the value of the property, and the specific rules of the jurisdiction in which the property is located.
Here’s a breakdown of how these factors contribute to the economic burden:
Stamp Duty Rates: Higher rates of stamp duty result in a greater financial burden. For instance, in jurisdictions where the stamp duty rate is a high percentage of the property value, this can add a substantial cost to the overall expense of buying a property.
Property Value: Since stamp duty is often calculated as a percentage of the property’s value or purchase price, more expensive properties incur higher stamp duty fees. This can be particularly burdensome in high-value real estate markets.
Variable Rates and Exemptions: Some jurisdictions have variable rates based on the property’s value, the buyer’s status (e.g., first-time buyer, investor), or other factors. Exemptions or discounts for certain groups, like first-time homebuyers or lower-value properties, can lessen the financial burden for these buyers.
Regional Differences: The economic burden can vary significantly from one region to another. For example, in some countries or states, stamp duty rates are higher or have fewer exemptions, increasing the cost burden on buyers.
Impact on Market Dynamics: High stamp duty rates can affect market dynamics, potentially slowing down the property market. Buyers might need to save longer for a deposit plus stamp duty costs, reducing the liquidity and mobility within the housing market.
Additional Financial Planning Considerations: Buyers need to account for stamp duty in their financial planning. This tax increases the upfront cost of purchasing property, affecting budgeting, mortgage calculations, and overall affordability.
Economic Cycles and Policy Changes: Stamp duty rates and policies can change in response to economic conditions, government fiscal policies, or housing market trends. These changes can either alleviate or exacerbate the financial burden on buyers over time.
The economic burden of stamp duty on the payer is a significant factor in the overall cost of acquiring property. It varies widely based on local legislation, property values, and buyer circumstances, and can influence individual financial decisions as well as broader real estate market trends.
Cases and Exemptions for StampDuty
Consulting a tax advisor is advisable when assessing eligibility.
- Charities are exempt from paying stamp duty land tax (SDLT) when purchasing property for charitable purposes.
- The charity must intend to hold the land or property for qualifying charitable purposes and meet certain other conditions.
- First-time buyers in England and Northern Ireland pay no SDLT on the first £425,000 for properties purchased for £625,000 or less. This provides significant savings compared to standard rates.
Divorce and separation
- Transfers of property between spouses or civil partners on divorce/dissolution are exempt from SDLT. This applies even if there is an outstanding mortgage.
Bereavement and wills
- No SDLT is payable if property is left to you in a will, even if you take on an outstanding mortgage.
- Relief from SDLT may apply when multiple dwellings are purchased in a single transaction, subject to certain conditions.
- Local authorities can claim SDLT relief when compulsorily purchasing property to enable development by a third party.
Right to Buy
- Purchases under Right to Buy schemes by tenants from local authorities or housing associations are exempt from SDLT.
- Relief from SDLT is available in certain cases where property is transferred intra-group or as part of a company reorganisation.
Recent changes and proposed reforms to stamp duty laws in the UK 2023-2024
- In September 2022, the stamp duty threshold was raised from £125,000 to £250,000 for all homebuyers in England and Northern Ireland.
- The threshold for first-time buyers was also raised from £300,000 to £425,000. First-time buyers pay no stamp duty on the first £425,000 of a property purchase.
- These changes are temporary and set to expire on March 31, 2025, after which thresholds will revert to previous levels.
- In the 2022 Autumn Budget, the UK government announced a consultation on more fundamental reforms to replace stamp duty with a new “proportional property tax”.
- This could tax property transactions based on a percentage of the property value, rather than slab-style thresholds. It aims to improve efficiency and stability of revenues.
- The consultation also proposes removing stamp taxes on company share transfers to simplify the system and prevent avoidance.
- There is industry support for reform, but concerns around transitional arrangements and winners/losers.
- The government aims to introduce legislation in 2023 following the consultation. The timing and details of changes are still uncertain.
- Separately, the Scottish government is consulting on replacing land and buildings transaction tax with a different property acquisition tax.
While recent changes have adjusted stamp duty thresholds, more significant reforms to the fundamental structure of property transaction taxes are now being actively considered but remain in development.
Case Studies: Real-life examples of stamp duty payments
- A first-time buyer in London purchased a property for £500,000. Under the current rules, they paid no stamp duty on the first £425,000 and 5% on the remaining £75,000, totaling £3,750 in stamp duty
- A couple buying their first home in Manchester for £200,000 paid no stamp duty at all due to the first-time buyer exemption on properties under £425,000
- A family moving to a new house in Bristol worth £350,000 paid stamp duty of 0% on the first £250,000 and 5% on the remaining £100,000, totaling £5,000
- A London couple moving to a £600,000 house paid 0% on the first £250,000, 5% on the next £350,000 with total stamp duty of £17,500
- An investor purchasing a £300,000 buy-to-let flat in Manchester paid the 3.8% surcharge on the entire amount, costing £11,500 in stamp duty
- A couple buying a £500,000 holiday home in Cornwall paid 3% on the first £250,000 (£7,500), 8% on the next £250,000 (£20,000), totaling £27,500
Stamp duty costs can vary widely based on property value, buyer type and location, ranging from zero for some first-time buyers to tens of thousands for higher value properties and additional homes. Consulting a stamp duty calculator is advisable.
- HMRC Inheritance Tax Manual – Detailed technical guidance from HMRC on inheritance tax rules and administration.
- HMRC Stamp Duty Land Tax Manual – Guidance from HMRC on stamp duty land tax including multiple dwellings relief.
- GOV.UK Inheritance Tax Pages – Overview of inheritance tax rules for individuals from the UK government.
- GOV.UK Stamp Duty Land Tax Pages – General guidance on stamp duty land tax from the UK government.
Read also: How does the house sale agreement work?
Who pays stamp duty on transfer of shares?
The primary liability falls on the buyer of shares in a UK company whenever consideration over £1,000 is paid on the transfer. But brokers will often handle payment on behalf of their clients. Consulting a tax advisor can help fully understand stamp duty obligations.
- Stamp duty is generally paid by the buyer (purchaser) of the shares when existing shares in a UK incorporated company are transferred.
- The standard rate of stamp duty on share transfers is 0.5% of the consideration paid. Consideration refers to the amount paid for the shares.
- Stamp duty only applies to share transfers over £1,000 in value. Transfers below this threshold are exempt.
- For electronic paperless share transfers, stamp duty reserve tax (SDRT) applies rather than stamp duty. SDRT is also charged at 0.5% and collected automatically through the CREST system.
- While the buyer is liable for the tax, in practice share dealing brokers will often pay the stamp duty on behalf of their clients when shares are purchased through them. The stamp duty cost is then passed on to the client as part of the broker’s fees.
- Companies purchasing shares also have to pay stamp duty. The company will be responsible for calculating and paying the tax to HMRC within 30 days of the share transfer.
- There are some exemptions from stamp duty, such as for certain intra-group share transfers or first issuances of shares. But specialist tax advice should be sought if seeking to rely on an exemption.
Who do we pay stamp duty to?
Stamp duty is usually paid to the national or state/provincial tax authority where the property is located at the time of purchase and registration. The revenue department that handles property taxes collects and administers stamp duty.
This depends on the country/state where the property purchase takes place:
- In the United Kingdom, stamp duty is paid to HM Revenue and Customs (HMRC). HMRC collects the tax on behalf of the UK government when property sales complete.
- In Australia, stamp duty is paid to the State Revenue Office in the specific state where the property is located. Each Australian state government collects stamp duty for property transactions in their jurisdiction.
- In India, stamp duty is paid to the Registration and Stamps Department of the state government where the property registration takes place. It may also be paid through authorized bank branches.
- In Canada, no nationwide stamp duty exists on property. But some provinces levy a property transfer tax that is paid to the provincial tax authority.
- In the United States, there is no federal stamp duty. But some counties/cities may charge a real estate transfer tax payable to the local tax collector’s office.
Who doesn't have to pay stamp duty?
First-time buyers, seniors, inheritors, spouses, government entities, and foreign buyers may potentially avoid paying stamp duty depending on regional laws and property specifics. But one should always confirm with a legal professional.
Here are some common scenarios where stamp duty may not need to be paid on a property purchase:
- First-time home buyers – Some countries/states offer stamp duty exemptions or discounts for first-time home buyers on properties below a certain price threshold.
- Seniors downsizing – Stamp duty concessions often apply to retirees or seniors purchasing a lower priced new primary residence.
- Inheritances – Transferring property title to beneficiaries as part of an inheritance is usually exempt from stamp duty.
- Transfers between spouses – In many places, property transfers between legally married spouses do not attract stamp duty.
- Government agencies – Transfers of property to or from government bodies may be exempt.
- Low property values – Purchases below a minimum property value threshold are exempt from stamp duty in some countries.
- Foreign buyers – Overseas investors from certain countries buying real estate may qualify for stamp duty exemptions in specific cases.
- New construction – Purchasing brand new or off-plan property can come with stamp duty discounts or waivers in some markets.
- Remortgaging – Taking out a new mortgage on an existing property ownership usually does not trigger stamp duty payments.
Who pays stamp duty land tax landlord or tenant on a lease?
In the context of Stamp Duty Land Tax (SDLT), it is typically the tenant who is responsible for paying this tax on lease transactions. The SDLT is calculated based on various factors related to the lease:
Lease Value: The SDLT payable by tenants is determined by the value of the lease, which includes any premium paid, the rent payable, and the length of the lease. This calculation can vary based on these contributing factors.
Gross Rent Calculation: SDLT is calculated on the amount of gross rent for the term of the tenancy, after applying a pre-set discount, known as the Temporal Discount Rate, which is currently set at 3.5%.
Tenant’s Obligation and Submission of Declaration: The tenant is responsible for completing and submitting a declaration form (SDLT1) to the Inland Revenue within 30 days of either the tenancy commencement or the lease execution date, whichever comes first. Penalties apply for late submissions of this declaration.
Tenants must file an SDLT return and pay any tax owed even if no SDLT is due, for leases of 7+ years where rent exceeds £1,000 per year.
Cumulative Rent Threshold: In some cases, such as in the UK, a tenant is required to pay SDLT once the cumulative rent exceeds a certain threshold, which is £125,000. This rule is less widely known and applies when the cumulative rent over the duration of the lease surpasses this threshold.
These points highlight that the responsibility for paying SDLT in lease transactions generally falls on the tenant, with the amount depending on the specifics of the lease agreement and the cumulative rent payable.
Why tenants have to pay SDLT on leases?
Tenants pay SDLT on leases to reflect the value of the leasehold interest they acquire and contribute to the government’s revenue from property transactions. The system aims to ensure equitable taxation across various forms of property interests and encourage efficient property use.
Tenants are required to pay Stamp Duty Land Tax (SDLT) on leases for a few key reasons:
Lease as a Form of Property Interest: A lease grants the tenant a form of property interest in the leased premises for a specified period. SDLT is a tax on property transactions, including this type of property interest. Therefore, just as buyers of freehold or leasehold properties pay SDLT to reflect their acquisition of a property interest, tenants pay SDLT to reflect the value of the leasehold interest they acquire.
Revenue Generation for Government: SDLT on leases is a way for governments to generate revenue from real estate transactions that do not involve outright sale and purchase. It acknowledges that leasing is a significant economic activity and brings it into the tax framework.
Reflection of Lease Value: SDLT on leases is calculated based on the lease’s value, including any premium paid, the rent payable, and the lease length. This method ensures that the SDLT paid reflects the economic value of the lease to the tenant.
Equitable Taxation Across Property Transactions: By requiring tenants to pay SDLT on leases, there’s a more equitable distribution of tax obligations across different types of property transactions. This system ensures that all forms of property interests contribute to the tax base.
Encouragement of Efficient Use of Property: In some jurisdictions, SDLT on leases can be structured to encourage the efficient use of property. For example, higher rates for longer leases or leases of high-value properties might encourage shorter lease terms or more efficient use of space.