What is stamp duty?

Stamp duty, or stamp duty land tax (SDLT), is a lump sum that must be paid to the taxman if you buy a property or land over a certain price. It is often the largest additional bill – running into thousands of pounds – people face when buying a home. How much stamp duty you fork out depends on when you bought the property and how much you paid for it, People must pay stamp duty within 14 days of purchasing a property. If you are using a solicitor or licensed conveyancer to handle the legal side of buying a home, they will usually organise this for you although you can do it for yourself.

Stamp duty rates from July 1 to September 30, 2021

The stamp duty rates have been temporarily revised: -

• 0% on the first £250,000
• 5% on the next £675,000 up to £925,000
• 10% on the next £575,000 up to £1.5 million
• 12% on the remaining portion above £1.5 million

Source: HMRC

Keep in mind also the stamp duty equivalent rates are different in Scotland (Land and Building Transaction Tax) and Wales (Land Transaction Tax).

If you are buying a second home or a buy-to-let investor, you have to shell out an extra 3% on each stamp duty band (in Wales and Scotland it’s 4%). So instead of paying 0% on the first £250,000, thanks to the holiday, they pay 3% but that’s still saving thousands of pounds compared to before.

Stamp duty rates from October 1, 2021

• 0% on the first £125,000
• 2% on the next £125,000 up to £250,000
• 5% on the next £675,000 up to £925,000
• 10% up the next £575,000 up to 1.5 million
• 12% over £1.5 million

Source: HMRC

This assumes you are purchasing a property in England and Northern Ireland that will be your main home. Add 3% on every stage if you are buying a second home or a buy-to-let landlord.

The tax applies whether you’re buying outright (a cash buyer) or with a mortgage and whether it’s a freehold or leasehold property.

Does the extension apply to Scotland and Wales?

There were less generous tax breaks in both devolved nations to take account of lower property prices. In Wales, the nil-band rate was raised to £250,000 from £180,000 and the tax holiday extended to June but has now ended. Moreover, second home buyers and buy-to-let landlords were not eligible for the tax break, unlike in England and Northern Ireland.

In Scotland, the nil tax threshold for land and building transaction tax (LBBT) was raised from £145,000 to £250,000 in July 2020 but all other tax bands remained the same. The LBBT holiday ended as planned in March 2021.

How much money would you save?

To work out how much you could save in England and Northern Ireland you will need to compare the stamp duty you would have paid under the old rules compared to now.

Average house prices increased over the year to January 2021 in England to £267,000 (7.5%), in Wales to £179,000 (9.6%), in Scotland to £164,000 (6.9%) and in Northern Ireland to £148,000 (5.3%), according to the Office for National Statistics.

Example: home mover

Say you are a home mover buying an average priced property in England for £267,000 and complete between July and September 2021. In this scenario, you pay nothing on the first £250,000 and 5% on the portion between £250,000 and £267,000.

To work out the stamp duty, subtract £250,000 from £267,000 to get £17,000. Then divide this figure by 100 to get 1% and multiply by five to get 5% which is £850. So, your total stamp duty holiday bill is £850.

What happens if buyers miss the September 30 holiday deadline? To calculate the stamp duty, you pay zero on the first £125,000. On the chunk between £125,000 and £250,000 you pay 2%. To work this out subtract £125,000 from £250,000, which is equal to £125,000. Then divide this figure by 100 to get 1% and multiply it by two to get 2% which is £2,500. Next you pay 5% on the remaining portion between £250,000 and your house price of £267,000. So, subtract £250,000 from £267,000 to get £17,000.

Then take this figure and divide by 100 to get 1% and then multiply by five to get 5% which is £850. To find out your total stamp duty bill, you then add together £2,500 and £850 to get £3,350. The difference between the two is the saving.

To calculate, subtract £850 from £3,350, equal to £2,500. So, in this example you save £2,500 – enough to buy a stylish sofa (or two) and a couple of armchairs for your new home.

Of course, this assumes the asking price of the house you want to buy hasn’t been hiked during the stamp duty holiday – something experts say could happen.

An easier way to calculate how much you could save (or to check your sums) is to use the government’s handy calculator which has been updated to include the holiday. https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro

Example: first-time buyer

Under the old rules, first-time buyers were already exempt from paying stamp duty on properties below £300,000. If they purchased over this threshold, they paid stamp duty at a rate of 5% of the chunk between £300,000 and the property price.

Under the stamp duty holiday, first-time buyers who purchase an average priced property of £267,000 won’t see bigger savings as they were already eligible for relief on the first £300,000 of a property purchase.

From July 1, a first-time buyer who buys a more expensive property will pay 5% on the chunk over £300,000 to £500,000. It is still a discounted rate. If the price is over £500,000, first-time buyers follow the rules for people who have bought a home before.

Example: Second home and buy to let landlords

Second homeowners and buy-to-let landlords benefit from the extended holiday in England and Northern Ireland but pay more stamp duty than ordinary home buyers.

For instance, a second homeowner who buys an average priced property of £267,000 ahead of September 31, 2021 can expect a stamp duty bill of £8,860.

5 % on the first £250,000 = £7,500
8% on the next £17,000 = £1,360
Total SDLT =£8,860

But when the stamp duty holiday is phased out from October 1, the normal rates will return and the bill will rise to £11,360.

3% on the first £125,000 = £3,750
5% on the next £125,000 = £6,250
8% on the final £17,000 = £1,360
Total SDLT = £11,360

To find the total saving, subtract £8,860 from £11,360, equal to £2,500.

Stamp duty holiday was planned to end after June this year but has been extended for three months to ease the transition back to the original rates. Extending the holiday has given overloaded solicitors and licensed conveyancers more time to complete the paperwork. But buyers will need to move quickly to take advantage of the tapered tax break.