Upcoming stamp duty land tax changes: what you need to know

In the Autumn Budget, significant changes to the UK’s Stamp Duty Land Tax (SDLT) system were announced. Some of the changes have already come into effect, but further changes will come into effect on 1 April 2025. These reforms will affect residential property buyers, particularly first-time buyers. Understanding these changes is crucial for anyone involved in property transactions in the coming years.

One of the most impactful changes is the reduction of the Nil Rate Band threshold. Currently, the Nil Rate Band is set at £250,000, meaning that properties valued below this threshold are not subject to SDLT. However, this threshold will be cut in half, dropping to £125,000 starting in April 2025. As a result, anyone purchasing or buying a share in a residential property for more than £250,000 will face an additional £2,500 in SDLT costs. This change is expected to affect a significant number of homebuyers, particularly in areas where property prices are higher, such as Bath.

For first-time buyers, the government is also tightening the rules for SDLT relief. Currently, first-time buyers can claim SDLT relief on properties worth up to £625,000, with no tax charged on the first £425,000, and a 5% rate applied to the portion of the property’s value above that amount. However, from 1 April 2025, the threshold for first-time buyer relief will drop to £500,000, with the 5% rate applying to properties between £300,000 and £500,000. The 0% rate will still apply up to £300,000, but this reduction means fewer first-time buyers will benefit from the same level of tax relief.

Additionally, the SDLT higher rate, which applies to the purchase of second homes, will continue to affect buyers of additional properties. This higher rate already increased for second homes and certain purchases by corporate bodies, and while these increases will remain in place, they will not apply to contracts exchanged before or on 30 October 2024. Buyers who have already exchanged contracts will not be subject to the new rates, which provides some relief for those already in the process of purchasing property.

These changes indicate a shift towards a more stringent SDLT system, particularly for higher-value properties and first-time buyers. It’s essential for anyone planning to buy property in the UK after April 2025 to be aware of these upcoming reforms and to factor them into their financial planning. With the reduction in relief thresholds and the new tax burdens, property buyers should plan ahead and ensure their finances are sufficient to cover these Stamp Duty costs.

For more information, please get in touch with Priscilla Macleod, Associate.