Scotland – Land and Buildings Transaction Tax (LBTT)

Land and Buildings Transaction Tax (LBTT) is a tax paid when you buy or lease property or land in Scotland.

For residential properties, Land and Building Transaction Tax applies to any properties that cost more than £145,000, the cost of which is based on the total value of the property and pre-set tax rate bands. First-time buyers, assuming they meet the criteria, can get LBTT relief where the tax is only payable on properties worth more than £175,000.

When purchasing a second home or a buy-to-let property, you’ll have to pay an extra 4% of Land and Building Transaction Tax on top of current rates if the property costs more than £40,000. This is calculated based on the property value and pre-set tax rate bands.

For commercial properties, Land and Building Transaction Tax applies to the purchase of properties that cost more than £150,000. The LBTT for commercial properties that cost more than £150,000 is calculated based on the property value and pre-set tax rate bands.

Wales – Land Transaction Tax (LTT)

Land Transaction Tax (LTT) is paid when you buy or lease property or land over a certain value in Wales.

For residential property, (a property you wish to live in) the tax only applies to a property that costs more than £180,000. If the property you’re buying is worth more than £180,000 you’ll be charged Land Transaction Tax based on the value of the property and pre-set bands that indicate the percentage of tax you’ll pay.

It’s worth mentioning that first-time buyers don’t get any exemptions from Land Transaction Tax.

When purchasing second homes and buy-to-let properties, the Land Transaction Tax is different. You’ll be charged 3% more LTT than the main residential rates, but only if the property costs more than £40,000- if you’re purchasing a second property under that value then the tax won’t apply.

For commercial property, Land Transaction Tax applies to properties worth more than £150,000. For commercial properties worth more than £150,000 the Land Transaction Tax will be charged based on the value of the property and pre-set bands that indicate the percentage of tax you pay.

Does Stamp Duty apply to commercial property?

Yes – but stamp duty only applies if the commercial property is worth more than £150,000, after which it’s calculated based on the value of the property.

Please note, these are the rates for England and Northern Ireland.

If you live in Scotland, you’ll pay Land and Buildings Transaction Tax.

If you live in Wales, you’ll pay Land Transaction Tax.

What is Stamp Duty?

Stamp Duty is the tax you’re liable to pay when you buy a residential property, or a piece of land, that costs more than £125,000. Also known as Stamp Duty Land Tax, this fee is non-negotiable and a necessity when purchasing land or property. There are several rate bands so the amount of Stamp Duty you pay will vary with the cost of the property.

If you’re a first-time buyer, you won’t have to pay Stamp Duty on properties worth up to £300,000. If the property is worth more than that £300,000 then you’ll only pay Stamp Duty on the sum over that value. So, if you bought a house for £330,000, you’d only pay Stamp Duty on £30,000 and that would only be 5% up to £500,000. https://www.gov.uk/stamp-duty-land-tax

If it’s your second home, the Tax applies to property or land that costs more than £40,000 and you’ll have to pay another 3% in Stamp Duty in addition to the current rates. This does not apply to caravans, mobile homes or house boats.

Please note, these are the rates for England and Northern Ireland.

If you live in Scotland, you’ll pay Land and Buildings Transaction Tax.

If you live in Wales, you’ll pay Land Transaction Tax.

What is a direct lender?

A direct lender is a company that loans money directly to the individual borrower, without any ‘middlemen’ or brokers.

Applying directly to lenders can be risky as you don’t have a mortgage broker advising you which lenders are likely to accept you, meaning you could have to apply to several lenders who will all do a credit search, potentially impacting your credit score. You also don’t know if other lenders could offer you a better rate or other terms.

What is a mortgage broker?

A mortgage broker acts as the ‘middleman’ between you and a potential lender. They are licensed and regulated by the Financial Conduct Authority, making sure that you, the borrower, get the best deal available for your personal situation. Many lenders only deal directly with mortgage brokers, meaning that the brokers often have access to a wider range of deals, rates and products.

Can I get a mortgage after Brexit?

Yes. After Brexit there’s a chance the available deals or rates that lenders offer may change in accordance with any economic changes, but mortgages will still be available.

What is a repayment mortgage?

A repayment mortgage is a mortgage in which you pay both the interest accrued and a portion of the capital initially borrowed in your monthly payment, meaning that when your mortgage term ends you’ve repaid all money owed to your lender.

What is an interest-only mortgage?

An interest-only mortgage is a mortgage where you only pay off the interest accrued every month and wait until the end of the mortgage term to pay off the original sum borrowed.

You must be able to prove to the lender you’ll be able to repay the mortgage at the end of the term to access an interest-only mortgage, whether through savings, investment or other assets.

What is a tracker mortgage?

A tracker mortgage is a mortgage where the interest rate usually follows, or tracks, the base rate set by the Bank of England.

It’s important to note it’s unlikely you’ll get the exact base rate; lenders will often offer a mortgage set at a percent or two higher than the base rate and may have a cap on how low the interest rate can get.

Because the rate is variable, you could benefit from cheaper payments when the rate is low but could also risk higher payments when the rate raises. It’s also worth mentioning that arrangement fees tend to be lower for this type of mortgage as opposed to fixed-rate mortgages.

What is a standard variable rate mortgage?

With a standard variable rate mortgage, the interest rate is subject to rise, or fall depending on the lender’s current rate. The lender will decide your interest rate for each month and doesn’t have to follow the base rate set by the Bank of England.

What is a variable-rate mortgage?

Variable rate mortgages are mortgages where the interest rate can be changed, or varied, from month to month. There are two traditional types of variable rate mortgages, standard and tracker variable.

What is a fixed-rate mortgage?

A fixed-rate mortgage is a mortgage where the interest rate remains the same, or fixed, for the duration of the loan or a set period of time. The fixed rate usually lasts between 2 to 5 years, but it’s sometimes possible to get a fixed-rate of up to 10 years or more.

This means your repayments should stay the same during the fixed rate period, making it far easier to budget and track expenses.

When the fixed-term ends, your mortgage will most likely transition to the lender’s standard variable rate – unless you take a new product with your existing lender or remortgage to another lender that has a more competitive rate. You can usually arrange this 3 to 6 months before your fixed rate term ends.

Can someone pay my deposit?

Yes, you can accept a deposit gift, and often lenders will accept you for a mortgage with a gifted deposit, but it must be a gift, and not a loan. They’ll require a document stating the gifter’s name, the relationship to the recipient and a statement declaring the deposit money is a gift, and not a loan. Some lenders will also ask the person gifting the deposit to sign a document relinquishing any claim or interest they might have in the property.

It’s very important that the gifted deposit has traceable origins, as your solicitor has a duty to check the source of funds.

This can be an ideal option for parents, or grandparents who want to help their children get onto the property ladder. It’s worth noting that some lenders will only accept gifted deposits from close relatives, so if you’re applying for a mortgage with a gifted deposit, it’s worth going to an expert mortgage broker, such as Clever Mortgages, to make sure the right lender is approached.