Tax tips for buyers
Stamp duty, LBTT, Additional dwelling supplement – all terms that buyers will hear at some point. Not only can be it be difficult to understand, but it can at times be confusing as to how it is paid or who pays it.
Stamp Duty is no more and was replaced by Land Buildings Transaction Tax (LBTT) which came into effect on April 1st, 2015. While following a similar concept of Stamp Duty, there are significant changes which could affect what a buyer pays overall. For residential property transactions, the rate of tax is determined by reference to percentages of the chargeable consideration for the transaction falling within the bands below:
Purchase price LBTT rate
Up to £145,000 0%
Above £145,000 to £250,000 2%
Above £250,000 to £325,000 5%
Above £325,000 to £750,000 10%
Over £750,000 12%
If the purchase price is above the nil rate tax band of £145,000, LBTT is charged at the appropriate rate on the amount of the chargeable consideration within the relevant bands. For example, a house bought for £280,000 is charged at:
0% for the first £145,000, then
2% for the next £105,000
5% for the next £30,000 and
Total: £3,600 must be paid in LBTT
This means that a purchase at approximately £325,000 and upwards will mean more tax than 3 years ago and will increase accordingly the higher a price goes beyond that. Conversely, a purchase price below that figure will mean less tax than 3 years ago. We have provided a link to the governments tax calculator in order to help buyers;
The Additional Dwelling Supplement (ADS) may not apply to all but is still an important factor when looking at buying or selling property. This applies to those buying a second residential property with a relevant consideration of £40,000 or more where the subject-matter of that transaction consists of or includes the acquisition of ownership of a dwelling in Scotland. This will apply mainly to those purchasing a buy-to-let property or holiday home. It is important to note that first time buyers or those selling and buying a new main residence will not be liable to pay this supplement. Below we have included an example of how ADS would work.
If a buyer purchases an additional dwelling for a consideration of £350,000 and does not dispose of their first dwelling, the ADS will therefore apply to the purchase of this additional dwelling and is calculated on the whole purchase price of the transaction.
The overall LBTT that will be payable for the purchase of her additional dwelling is calculated as follows:
LBTT payable under standard residential LBTT rates:
0% on the first £145,000 = £0
2% on the next £105,000 = £2,100
5% on the next £75,000 = £3,750
10% on the next £25,000 = £2,500
ADS payable on whole purchase price of £350,000:
3% of £350,000 = £10,500
Total LBTT including ADS due (£8,350 + £10,500) = £18,850
Buyers can see that it can be tricky to calculate but we are always more than happy to talk them through what their options are. At Berkeley Property, we help buyers just as much as we help sellers and it is always our goal to give our clients on both sides the best advice to make an informed decision.