Buying an off-plan property—one that is not yet built or completed—offers several advantages, such as securing a property at a lower price before the market rises or customising certain elements of the build. However, when it comes to Stamp Duty Land Tax (SDLT), off-plan purchases can be a bit more complex. In this guide, we’ll explore how stamp duty applies to off-plan properties, when it’s payable, and key considerations for buyers, including first-time buyers and investors.
What is an Off-Plan Property?
An off-plan property is one that is sold before it has been completed or, in some cases, even before construction has begun. Buyers purchase the property based on plans and specifications provided by the developer, often securing the property at a pre-construction price.
While this offers potential savings and customization options, it also raises questions about how taxes like SDLT are calculated and when they need to be paid.
When is Stamp Duty Payable on an Off-Plan Property?
For off-plan property purchases, stamp duty is typically due upon completion of the sale, not at the time of exchanging contracts. This means you do not have to pay SDLT at the point of securing the property off-plan, but rather when the property is fully built, and ownership is legally transferred to you.
For example, if you buy an off-plan property in early 2024 but the property won’t be completed until 2025, your stamp duty payment will be due upon completion in 2025. This gives buyers more time to plan for the cost of stamp duty, as it’s typically not an immediate expense during the contract signing stage.
How is Stamp Duty Calculated for Off-Plan Purchases?
Stamp duty for off-plan purchases is calculated in the same way as it is for completed properties, based on the purchase price agreed upon at the time of contract exchange. The standard Stamp Duty Land Tax (SDLT) rates for residential properties in 2024 are as follows:
- Up to £250,000 – 0%
- £250,001 to £925,000 – 5%
- £925,001 to £1.5 million – 10%
- Above £1.5 million – 12%
However, the key advantage for off-plan buyers is that the stamp duty is calculated based on the price agreed upon at the time of contract exchange, not the market value at the time of completion. This means if property values increase during construction, you won’t have to pay additional stamp duty based on the higher market value; you’re only taxed on the original agreed price.
Example Calculation
Let’s say you buy an off-plan property for £500,000. When it’s completed, the market value of the property has risen to £600,000. Fortunately, your SDLT will still be based on the £500,000 price agreed upon at the time of the exchange, not the new market value.
The stamp duty would be calculated as follows:
- 0% on the first £250,000
- 5% on the next £250,000, which amounts to £12,500
Your total stamp duty payment will be £12,500, even though the property’s market value has increased to £600,000 by the time of completion.
Special Considerations for First-Time Buyers
First-time buyers who purchase off-plan properties may benefit from First-Time Buyer Stamp Duty Relief. As of 2024, first-time buyers are exempt from paying SDLT on the first £425,000 of a property worth up to £625,000. If your off-plan property falls within this price range, you could save a significant amount on stamp duty.
For example, if you purchase an off-plan property for £400,000, as a first-time buyer, you won’t pay any stamp duty at all. If the property costs £500,000, you’ll only pay SDLT on the portion exceeding £425,000 (in this case, £75,000), resulting in a stamp duty bill of £3,750.
Off-Plan Property for Investors
Off-plan properties are often attractive to buy-to-let investors or those looking to invest in properties before completion. However, if you’re purchasing the off-plan property as a second home or investment property, you’ll need to factor in the 3% stamp duty surcharge on top of the standard SDLT rates.
For example, if you’re buying an off-plan property for £400,000 as a second home, the SDLT would be:
- 0% on the first £250,000
- 8% (5% SDLT + 3% surcharge) on the next £150,000, resulting in £12,000 in SDLT
This surcharge applies even though the property isn’t yet complete, so investors should carefully plan for the total stamp duty costs at the time of purchase.
Delays and Changes in Property Value
While stamp duty is based on the original purchase price, it’s important to note that if there are significant changes to the property during construction—such as additional features, increased size, or other alterations—the price may be adjusted accordingly. This could lead to a higher stamp duty bill if the final purchase price is higher than the agreed price at the time of exchange.
Additionally, if construction is delayed significantly, it’s crucial to monitor market conditions and your financial planning, as the completion date will dictate when the stamp duty is payable.
Key Takeaways
- Stamp duty on off-plan properties is calculated based on the agreed price at the time of exchange, not the market value at completion.
- Stamp duty is payable upon completion of the sale, giving buyers time to plan for the tax payment.
- First-time buyers can benefit from stamp duty relief on off-plan purchases, potentially reducing their tax liability.
- Investors need to account for the 3% surcharge when purchasing off-plan as a second home or investment property.
Off-plan property purchases offer exciting opportunities for buyers, but it’s essential to understand how Stamp Duty Land Tax applies. By planning ahead and knowing when and how SDLT is calculated, you can avoid surprises and ensure your off-plan purchase goes smoothly.
