Wednesday, June 12, 2024

Island Issues

Great Britain: UK Government Increases Stamp Duty

Attention private island buyers! The UK Government has implemented plans to increase Stamp Duty. Private Island News investigates what consequences this will have for island buyers.

  • As announced in 2014’s Autumn Statement, the British Government has increased Stamp Duty, introducing a sliding statement dependent on property prices.
  • The Stamp Duty Land Tax (SDLT) is payable upon purchasing a freehold, leasehold or shared ownership residential property over GBP 125,000
  • The new ruling will affect private islands for sale in England, Wales and Northern Ireland. Scottish islands will not be affected by the increase
Linga Island, Scotland - Photo Courtesy of Vladi Private Islands GmbH

Linga Island, Scotland – Photo Courtesy of Vladi Private Islands GmbH

UK Government Increases Stamp Duty

The Government of the United Kingdom has implemented its plans to increase Stamp Duty. After initially announcing proposals to restructure the tax in 2014’s Autumn Statement, the Government has finally revealed the latest Stamp Duty Land Tax rates, including a brand new sliding system dependent on property prices.

The new higher rate will be implemented in April 2016. Private Island News investigates how this tax rise will work in practice and how it will affect private island buyers and sellers in the UK.


What is Stamp Duty?

Stamp Duty Land Tax (SDLT) a progressive tax paid to the British Government by domestic and foreign purchasers when buying a freehold, leasehold or shared ownership residence costing over GBP 125,000. The tax applies to properties in England, Northern Ireland and Wales, but not in Scotland, which has its own separate Land and Buildings Transaction Tax.

The tax was introduced in 2003’s Finance Act, and, despite its name, is not a stamp duty in the traditional sense of the word, but rather a form of “self-assessed transfer tax charged on ‘land transactions.’” It should be paid within 30 days of successfully completing a transaction.


The New Changes to UK Stamp Duty

The changes to the UK SDLT will see a new sliding system replacing the old ‘slab structure,’ which saw buyers pay a rate on the entire property purchase price. As of April 2016, the SDLT rates will be payable only on the portion of a property price which falls with each band.

If the property in question is a so-called “additional property” (a term which implicitly includes second homes and buy-to-let properties), a higher tax rate will apply.

The new SDLT brackets are as follows:


GBP 0 – 125,000 0% 3%
GBP 125,001 – 250,000 2% 5%
GBP 250,001 – 925,000 5% 8%
GBP 925,001 – 1,500,000 10% 13%
GBP 1,500,000+ 12% 15%


What the Changes Mean to You

The new SDLT system means, if you were to buy a property for GBP 850,000 you would pay no stamp duty on the first GBP 125,000, then 2% on GBP 125,001 – 250,000 and 5% above GBP 250,000. To see this in real terms, British brokerage company Knight Frank has created a handy calculator:

Importantly for readers of Private Island News, the changes mentioned will affect not only “normal” residential properties, but also private islands. For UK home-owners buying a private island in either England, Wales or Northern Ireland the new 3% surcharge will most definitely apply, equating in real terms to a jump from GBP 2,500 to 8,000 on the tax bill of a GBP 250,000 “additional property”.

Treasury Minister David Gauke has already gone to great pains to insist that under the new rates, foreign investors and non-doms will be “treated in exactly the same way as UK residents.” Speaking in the House of Commons, he explained, “If purchasers own another property elsewhere in the world and are purchasing an additional property in England, Wales and Northern Ireland, they will be charged under the new rates.”

Rush to Snap Up Properties Before April 1st

Experts have been quick to criticize the decision to increase stamp duty, with analysts from the Institute for Fiscal Studies describing the tax hike as “ill-designed” and likely to create a rush to buy second homes before the increase comes into play, creating an artificial property bubble as people up their offers in order to force deals through before April 1st.

The new ruling is not without its loopholes. Wealthy investors may be able to get around the ruling if buying in bulk – for transactions involving more than 15 properties, it would be possible to form a corporation or investment fund to avoid paying a single penny of stamp duty land tax.

So if you’re thinking of buying a private island in England, Wales or Northern Ireland, don’t delay…


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