Property transaction taxes in the UK are paid by the purchaser when a property is bought. There are currently three such taxes in operation in the UK:
- Stamp duty land tax (SDLT) – in operation in England and Northern Ireland. SDLT in its current form was introduced across the UK in 2003.
- Land and buildings transaction tax (LBTT) – in operation in Scotland since April 2015.
- Land transaction tax (LTT) – in operation in Wales since April 2018.
The power to tax property transactions was devolved to the Scottish Parliament in April 2015, at which point it replaced SDLT with LBTT. This was followed by devolution to the National Assembly for Wales in April 2018, which replaced SDLT with LTT. SDLT is collected by HMRC, LBTT by Revenue Scotland and LTT by the Welsh Revenue Authority.
The tax paid largely depends on three factors:
- The nature of the property – tax rates differ depending on whether the property is used for residential or commercial purposes (i.e. whether it is used exclusively as a dwelling or not). For a given price, the marginal tax rate faced is generally higher for residential properties.
- The price of the transaction – tax rates are graduated so that more expensive properties face progressively higher tax rates. All three taxes follow a ‘slice’ design similar to income tax, whereby rates only apply to the part of a property’s selling price that falls within designated value bands. Compared to SDLT, both LBTT and LTT rates are to a large extent more progressive – they are lower for less expensive properties and higher for more expensive ones.
- The characteristics of the purchaser – if a purchaser already owns a dwelling, they face at least a three percentage point surcharge on standard tax rates when buying additional residential properties – such as those intended to be rented out or used as second homes. For Scottish LBTT, the additional dwellings surcharge is four percentage points. In addition, there are many reliefs available to purchasers that reduce their tax liability. Some of those buying their first dwelling can benefit from a specific ‘first-time buyers’ relief’ if certain criteria are met. There are several other reliefs available such as for purchases by charities or registered social landlords. Finally, if a commercial property is leased rather than purchased outright, there is a different tax treatment based on the net present value of the lease.
SDLT, LBTT and LTT are relatively similar in design and since the ONS combines them when recording them in the public finances statistics, we have combined them on this page. Following the ONS approach, we also include the ‘annual tax on enveloped dwellings’ (ATED) in this measure. While not technically a transaction tax, it is a component of the compliance regime for SDLT. It raises less than £200 million a year.
In our latest forecast, we expect property transactions taxes to raise £12.5 billion in 2019-20. We expect 93 per cent of this to come from SDLT and ATED, with 4.7 per cent coming from Scottish LBTT and 1.9 per cent Welsh LTT. That would represent 1.6 per cent of all UK receipts and is equivalent to £440 per household and 0.6 per cent of national income, if averaged across the UK as a whole.