Stamp Duty Explained

Buying a property is complicated, whether it’s a home for yourself, a second home or a buy-to-let. There’s so much jargon, official dots to join, paperwork to do, people to liaise with and legalities to handle. A lot of it comes with extra costs to pay on top of the price of the property itself, which means it’s a wise move to understand exactly what you’re dealing with before diving in and making an offer.

One of the things you need to know about is Stamp Duty. Stamp Duty Land Tax or SDLT is a compulsory tax for England and Northern Ireland, a tax we pay when we buy a home valued at over a certain price, although first time buyers are usually exempt from paying it. It’s called Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales.

How much HMRC Stamp Duty do you have to pay? It’s complicated! Stamp Duty applies when you buy a freehold, a new or existing leasehold, a shared ownership or are transferred land or property in exchange for payment, for example when you buy a share in a property. Luckily our plain language Stamp Duty Guide tells you everything you need to know about Stamp Duty on houses.

What is Stamp Duty

Stamp Duty Land Tax is usually paid by the Conveyancer when you exchange contracts, but if you decide to do it there’s a strict deadline of 14 days after you buy the property. Who pays stamp duty? You can only pay Stamp Duty when you’re buying a property. The Stamp duty rates depend on the price you pay for the property, the kind of property it is, and whether it’s residential, non-residential or mixed use. 

Your Stamp Duty is based on the part of your property that falls into each of these four bands. The current UK Stamp Duty rates for freehold sales, transfers, and most leaseholds in England and Northern Ireland are:

  • 0% on the first £500,000 – including shared ownerships when the share is less than £500,000
  • 5% on places sold for £500,001 to £925,000
  • 10% on places selling for £925,001 to £1,500,000
  • 12% on homes bought for £1,500,001 or more

Here’s a very simple example. If you bought the place for £510,000 you’d pay 0% on the first half million and 5% on the remaining £10,000.

There are different rates of Stamp Duty payment when you buy a second home or a buy-to-let property. You’ll usually have to pay an extra 3% on top of the normal stamp duty rates when buying means you’ll own more than one property. How to avoid stamp duty? Buy a place that falls under the lowest threshold – and while you’re looking, keep an eye open for changes to the Stamp Duty rates. More about that later. 

First Time Buyer Stamp Duty

Do first time buyers pay stamp duty? Fortunately Stamp Duty on your first home won’t be an issue for most people. But buying in London or any other major city, where even a first time home can cost way more than the national  average, you’ll probably end up paying some first time buyer Stamp Duty. Right now, as the first time buyer of a property costing up to £500,000, you don’t pay any Stamp Duty on the first £300,000. If it’s a shared ownership that rises to the first £500,000.

How to Calculate Stamp Duty

The Stamp Duty you pay is based on the part of your property that falls into each of the four bands we’ve mentioned, each separated by thresholds. A threshold marks the point where SDLT applies. When you buy a property for less than the first threshold, you don’t pay any SDLT.

Here are the current Stamp Duty threshold limits, and those to come:

  • The current threshold for residential property is £500,000. For non-residential property / land it’s £150,000

 

  • If you buy between 1st July 2021 and 30th September 2021 the thresholds are £250,000 for residential property and £150,000 for non-residential property / land
  • From 1st October 2021 the thresholds are £125,000 for residential property and £150,000 for non-residential property / land, taking us back to the rates we paid before July 2020

The government’s Stamp Duty holiday is designed to help the housing sector through the covid crisis. It kicked off on 8th July 2020 and will end on 30th June 2021, extended from the original date of 31st March 2021. From July 2021 onwards the tax relief will gradually ease back to normal in what’s called a ‘staggered return’, finally ending on 30th September 2021. From 1 October 2021 onwards the rates are:

  • £0 to £125,000 – 0%
  • £125,001 to£250,000 – 2%
  • £250,001 to £925,000 – 5%
  • £925,000 to £1,500,000 – 10%
  • £1,500,000 or more – 12%

How to calculate what you’ll pay? There are many online stamp duty calculators to tell you exactly what you’d owe in different circumstances. A good Stamp Duty calculator is an excellent tool to support intelligent financial decisions.

Here are some simple examples showing how Stamp Duty is calculated:

  • On a property bought for £450,000 you’d pay no SDLT because you bought for less than  £500,000
  • When you buy a place for £650,000 the first half a million isn’t taxed. You pay 5% on the remaining £150,000, which means your bill comes to £7,500

How to Pay Stamp Duty

You have 14 days from your completion date to file a Stamp Duty return and pay the tax. Leaving it too late can mean a fine. Most of the time your solicitor or conveyancer pays the tax on your behalf at completion, then adds the amount you owe to their fees. If you’re eligible they’ll also claim Stamp Duty Relief for you. But at the end of the day it’s your responsibility to make sure it’s paid on time.

Stamp Duty on Second Homes

Are second homes exempt from Stamp Duty? No, you still have to pay. If you buy another property in addition to your home that costs more than £400,000 you pay 3% extra Stamp Duty on the purchase price.

Stamp Duty Exemptions

When is Stamp Duty Exempt? You might be able to claim a Stamp Duty exemption refund if you sold your previous primary residence within three years of buying the new property. You can apply for a refund of the money above the normal Stamp Duty rates you’d have paid if your second home hadn’t been an additional property.

How to avoid Stamp Duty? You can legally avoid paying if you’ve been given the property in exchange for payment, in specific legal situations like divorce, and when it’s left to you in a Will.

Now you know all about Stamp Duty

Now you understand the thresholds for Stamp Duty, what you’ll owe and when it’s due, and all the legal requirements, you’re in a great position to go ahead and search for a place to buy, whether you’re funding your own home or buying a second property. Where Stamp Duty is concerned, knowledge means financial power.