Stamp Duty - Everything You Need to Know
When buying a home for more than £125,000 in either England or Northern Ireland, you will be subject to a Stamp Duty Land Tax (SDLT).
This guide will talk you through all there is to know about this type of tax, including Stamp Duty for first-time buyers, Stamp Duty on second homes and how Stamp Duty is paid.
What is Stamp Duty (UK)?
Whenever you buy a residential property or piece of land for more than £125,000 in the UK, you will be subject to pay a tax known as Stamp Duty. This £125,000 limit is reduced to £40,000 on second homes.
Stamp Duty no longer applies in Wales or Scotland, where it has been replaced with Land Transaction Tax (LTT) and Land and Buildings Transaction Tax (LBTT) respectively.
Stamp Duty applies to leasehold and freehold properties, whether being purchased outright or with an arranged mortgage.
How much is Stamp Duty? What are the bands?
There are several Stamp Duty bands which are determined by the property’s purchase price.
The rate is calculated on the part of the purchase price which falls within each band.
When buying a property for £300,000, the Stamp Duty Land Tax owed would be calculated as:
- 0% on the first £125,000 = £0
- 2% on the next £125,000 = £2,500
- 5% on the final £50,000 = £2,500
Total SDLT = £5,000
Stamp Duty rates
|Minimum property purchase price||Maximum property purchase price||Stamp Duty rate (this only applies to the part of the price falling between each band)|
|Over £1.5 million||N/A||12%|
*Stamp Duty for residential leasehold properties are charged differently
When is Stamp Duty payable?
Buyers have 14 days from the date of purchase to settle their payment of SDLT (this was previously 30 days).
If the correct amount is not paid within this time limit, HMRC might charge interest on the amount you owe as well as late payment fees.
How to pay Stamp Duty
Your solicitor will usually deal with the payment of Stamp Duty for you, but it is also possible to do it yourself.
What’s important to remember is, however you decide to pay, it is your responsibility to make sure that Stamp Duty is paid.
Even if your home is valued at less than £125,000 (meaning that you are exempt from Stamp Duty), you must file a return.
Stamp Duty for first-time buyers – Stamp Duty relief
First-time buyers in England and Northern Ireland are not subject to Stamp Duty on properties valued at up to £300,000. Essentially, this means that first-time buyers can save up to £5,000.
First-time buyers looking to purchase a property for between £300,000 and £500,000 will only pay Stamp Duty on the remaining £200,000, while those purchasing a property worth more than £500,000 will not qualify for first-time buyer’s relief and will be required to pay Stamp Duty on the entire purchase.
The only exception applies to those under a Shared Ownership scheme who have purchased a home worth up to £500,000 after 22nd November 2017; they can claim first-time buyer’s Stamp Duty relief.
Stamp Duty relief & joint ownership
If you’re buying a property with a married partner, you must both be eligible for first-time buyer’s Stamp Duty relief in order to qualify for it.
If you are buying a property with somebody to whom you are not married, you can benefit from the first-time buyer’s Stamp Duty relief even if one of you owns another property – however, this will mean that only the eligible person can be named on the mortgage deed.
This could potentially affect the amount of money you are allowed to borrow and could lead to issues if you were to separate, so think carefully about whether you’d like to do this.
Stamp Duty on second homes
If you are buying an additional property to one that you already own (such as a second home or buy-to-let property), you will need to pay an extra 3% on top of all current Stamp Duty rates for each band.
As well as this, the increased second home Stamp Duty rate is payable on all properties valued at more than £40,000.
This higher ‘second home’ Stamp Duty premium will also be payable if you are planning to sell, or in the process of selling, your old home. However, you will be able to claim for a Stamp Duty refund if you sell your old property within 3 years of buying a new one.
You might be able to reclaim Stamp Duty if:
- You sell/give away your old property within three years, and if
- You claim the Stamp Duty refund within 3 months of selling your old property (12 months of the filing date of your SDLT tax return).
How to avoid Stamp Duty
Unfortunately, there are very few ways of legally avoiding Stamp Duty.
Stamp Duty is not payable if the property you buy is valued at less than £125,000, and the fee is also waived for many first-time buyers.
Other than that, you can avoid Stamp Duty if:
- The property you want is slightly over band – If the price you’re paying is only slightly within a higher Stamp Duty band, it might be worth asking the seller to reduce their asking price to save you the extra money.
- Transferring a property (after separation or divorce) – If you get a divorce or are separating from your partner, you will not have to pay Stamp Duty if you choose to transfer some of your home’s value to them.
- Transfer of deeds – If you decide to transfer the deeds for your home to somebody else (eg. in your will or as a gift), they will not be required to pay Stamp Duty.