If you’re buying a property in the UK, then the chances are you’ll have some Stamp Duty to pay. Stamp Duty can be one of the biggest expenses that you encounter during the house-buying process and can easily run into several thousand pounds.
But what is Stamp Duty? What Stamp Duty rate will I pay? And are the rules different if I’m a first-time buyer? Keep reading for answers to these questions and more in your complete Stamp Duty guide.
What is Stamp Duty?
Stamp Duty land tax is a tax that you pay when you buy property or land in England and Northern Ireland (it’s called ‘land and buildings transaction tax’ in Scotland and ‘Wales land transaction tax’ in Wales – see below).
You’ll pay the tax based on the purchase price of the property or land and it doesn’t matter whether it is a freehold or leasehold property, or whether you’re buying with a mortgage or cash.
What are the Stamp Duty rates?
In the past, Stamp Duty was charged at a single rate based on the property price. However, since the tax was reformed in 2014 there is now a progressive system. This means that you may pay different rates of tax depending on the purchase price of the property.
The current Stamp Duty rate bands for buying a residential property in England and Northern Ireland are:
- Up to £125,000 – 0%
- £125,001 to £250,000 – 2%
- £250,001 to £925,000 – 5%
- £925,001 to £1.5m – 10%
- £1.5m or higher – 12%
How much Stamp Duty will I pay?
The tax is calculated based on the part of the purchase price falling within each tax band. Here’s an example.
You buy a property for £350,000. The amount of tax you pay is:
- Up to £125,000 – tax rate 0% so you pay £0 in tax
- £125,001 to £250,000 – tax rate 2% so you pay £2,500 in tax on this portion
- £250,001 to £350,000 – tax rate 5% so you pay £5,000 in tax on this portion
- Total tax payable: £7,500
What if I am a first-time buyer?
If you are buying your first property in England or Northern Ireland, then the rules are different.
If the purchase price of your home is up to £300,000 then you’ll pay no Stamp Duty at all.
If you’re buying a property with a purchase price between £300,001 and £500,000 then you’ll pay 5% Stamp Duty on any proportion within this band only.
So, if you’re a first-time buyer and you’re buying a property for £350,000, the amount of tax you will pay is:
- Up to £300,000 – tax rate 0% so you pay £0 in tax
- £300,001 to £350,000 – tax rate 5% so you pay £2,500 in tax on this portion
- Total tax payable: £2,500
If you’re a first-time buyer and you’re buying a property for more than £500,000 you won’t benefit from this relief and you’ll pay Stamp Duty at the normal rates.
What Stamp Duty do I pay on additional properties?
If you buy additional residential properties (for example, a second home or an investment property) then you must pay a higher rate of Stamp Duty.
This higher rate also applies if you buy a new main residence, but you haven’t sold your previous home. Here, you’ll have to pay the higher Stamp Duty rate on the new property.
However, you can apply for a refund of this additional tax if you sell your previous home within 3 years, and you claim the refund within 3 months of the sale if your previous main residence.
The Stamp Duty rate bands for second homes and additional properties are:
- Up to £40,000 – 0%
- £40,001 to £125,000 – 3%
- £125,001 to £250,000 – 5%
- £250,001 to £925,000 – 8%
- £925,001 to £1.5m – 13%
- £1.5m or higher – 15%
How does Stamp Duty work in Scotland?
Since April 2015, Stamp Duty in Scotland has been known as ‘land and buildings transaction tax’.
The principle remains the same: namely that it’s a lump-sum tax you pay when you buy a property. The main difference is that the thresholds and tax rates are slightly different:
- Up to £145,000 – 0%
- £145,001 to £250,000 – 2%
- £250,001 to £325,000 – 5%
- £325,001 to £750,000 – 10%
- £750,001 or higher – 12%
How does Stamp Duty work in Wales?
In Wales, Stamp Duty is known as ‘Wales land transaction tax’.
Again, the main difference is that the thresholds and tax rates are slightly different:
- Up to £180,000 – 0%
- £180,001 to £250,000 – 3.5%
- £250,001 to £400,000 – 5%
- £400,001 to £750,000 – 7.5%
- £750,001 to £1.5m – 10%
- £1.5m or higher – 12%
How do I pay Stamp Duty?
Your solicitor will normally deal with the payment of Stamp Duty as part of the conveyancing process. You can also do it yourself.
Remember that if the purchase price of your new home is in the 0% tax band, you may still have to submit a Stamp Duty return, even though there is no tax to pay.
Be careful if you’re being advised that you can avoid Stamp Duty on a second home
A leading solicitor has warned that, in recent months, some married couples have received incorrect advice about how they can avoid paying Stamp Duty on second homes.
Thursfields Solicitors say that they have noticed a recent trend in mistaken guidance given out by estate agents to members of the public.
Julie Goodman, a senior associate solicitor at the leading Midlands law firm, says: “In the last few weeks, I have been contacted by potential clients who have received ‘advice’ from estate agents about avoiding second home stamp duty.
“The scenario is that a property is owned by one party and is either going to be retained as an investment property or sold at a later date.
“Some estate agents are advising that the ‘other party’ – for example the husband – who does not currently own property can buy it in his own name and then transfer it by way of gift to both of them, which avoids second home Stamp Duty.
“But this is not a legal process, as for second home Stamp Duty purposes even if the purchase is made in a sole name, if the persons are married, it is treated as a joint purchase,” she adds.
The company warn that this advice is incorrect, and if you are considering it you could have to pay both second home Stamp Duty as well as a fine. Be careful!