When Do You Pay Stamp Duty? Everything You Need To Know

Posted 24 November 2017 by Helen Christie

What is stamp duty? How does it affect you? Here is a guide with everything you need to know about stamp duty...

Stamp Duty Land Tax (or simply 'stamp duty') is a tax that anyone who purchases a residential property costing more than £125,000 must pay. The rate the homeowner must pay will depend on the type and price of property.

How is stamp duty calculated?

For residential properties, Stamp Duty Land Tax is a percentage that is based on the price of the property in increasing portions for the property price over £125,000.

Portion 1 - Properties up to £125,000 – stamp duty rate = 0%

Portion 2 – The next £125,000 (£125,001 - £250,000) – stamp duty rate = 2%

Portion 3 – The next £675,000 (£250,001 - £925,000) – stamp duty rate = 5%

Portion 4 – The next £575,000 (£925,001 - £1.5m) – stamp duty rate = 10%

Portion 5 – Above £1.5m – stamp duty rate = 12%

Example

If you were to buy a house for £300,000, you would pay no stamp duty on the first £125,000. You will pay 2% stamp duty on the purchase price between £125,000 and £250,000, which is £2,500. Then you will pay 5% stamp duty on the value of the property above £250,000, which is £2,500. So, in total, you will pay £5,000 stamp duty.

Have there been changes in the way stamp duty is calculated?

In the Chancellor’s Autumn Statement in December 2014, Stamp Duty Land Tax was reformed completely. Prior to this, homeowners would have to pay a single rate on the entire property price, but now the way stamp duty is calculated is more progressive.

Abolishment of stamp duty for first-time buyers for purchases up to £300,000 (or the first £300,000 in a purchase up to £500,000) was introduced with immediate effect at the Budget on 22 November 2017. 

Example

If you're a first-time buyer purchasing a home for £200,000, you'll now save £2,500 on stamp duty. On a home priced from £300,000 to £500,000, you'll save £5,000 on stamp duty.

Other stamp duty changes

In April 2016, the 3% Stamp Duty Land Tax was introduced for all additional property purchases. This was quite a controversial decision, and applies to anyone buying a second home that costs £40,000 or more. It also applies to properties all over the world, so if you have a holiday home, the new rules will still apply. Find out more about the extra 3% stamp duty.

When do you pay stamp duty?

Once you complete your purchase on your home, you have 30 days to complete a Stamp Duty Land Tax return and pay what you owe. Even if your property cost less than £125,000 you still have to submit a return. If you do not pay it within the 30 days, you may be face a penalty and have to pay interest.

Does stamp duty apply to fixtures and fittings?

It does not apply to fixtures, or things like freestanding furniture, curtains or carpets, but it does apply to fixtures such as built-in wardrobes, bathroom and kitchen fittings. If you work out the value of the removable fittings, for example if the curtains are included, then agree on a reasonable price with the seller – taking into consideration quality and age – and then subtract this from the total price to calculate the stamp duty.

Are any properties exempt from stamp duty?

  • Zero carbon homes under £500,000 are exempt from stamp duty, and zero carbon homes over £500,000 will have their stamp duty reduced by £15,000
  • If a property has been left to you in a will, or no money or payment in received in a property transfer, you do not have to pay stamp duty
  • Properties bought for less than £40,000 are exempt

Can you avoid stamp duty?

Unless your property is exempt due to reasons listed above, you will have to pay stamp duty. However, there are ways to reduce it. If you are purchasing a property that is valued at just over one of the stamp duty bands, you could see if the seller will accept a slightly lower offer to take you below the band.

Some new build developers will offer to pay the stamp duty as an incentive for you to purchase a property from them.

Can you avoid stamp duty on second homes?

If the second home that you are buying becomes your main residence, then you will not have to pay the 3% surcharge.

If you are purchasing another property before moving out of your main home, you will have to pay the 3% surcharge, however, if you sell your main home within 36 months of completing on the second home, you will be refunded the full amount.


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