Stamp Duty - The Basics
House hunters looking to buy their dream property may have to fork out for stamp duty if it’s priced at more than £125,000. Here’s our guide to stamp duty and special rules for first-time buyers, second homes and buy-to-lets.
What is Stamp Duty?
Stamp Duty Land Tax (SDLT) is a tax that anyone buying land or a property above a certain value is liable to pay in England and Northern Ireland.
For existing homeowners, the threshold is £125,000 with an escalating rate depending on how much the property is worth.
In the Autumn Budget of 2017, it was announced that first-time buyers would be exempt from paying stamp duty on properties worth up to £300,000. The tax break also applies on the first £300,000 of a home in higher-price areas, this means first-time buyers don’t pay tax on the first £300,000 on properties priced up to £500,000.
Stamp Duty is higher for those buying a second home or buy-to-let property. Buy-to-let rates were hiked by three per cent in April 2016, making landlords’ costs higher. The aim was to free up homes for younger families to buy.
Stamp Duty must be paid whether you are a cash buyer or have a mortgage and for both leasehold and freehold properties. In Scotland, there is a Land and Building Transaction Tax and in Wales Land Transaction Tax instead of Stamp Duty.
How much is Stamp Duty?
There are five rate bands for Stamp Duty. The tax is calculated on the part of the property purchase falling within each band.
Property value SDLT Rate
Up to £125,000 Zero
£125,001 to £250,000 2%
£250,001 to £925,000 5%
£925,001 to £1.5 million 10%
Over £1.5 million 12%
If you buy a house for £325,000, the Stamp Duty you owe is
* O% on the first £125,000 = £0
* 2% on the next £125,000 = £2,500
* 5% on the final £75,000 = £3,750
Total SDLT = £6,250
The government provides a handy calculator so you can work out how much Stamp Duty you will pay on your new home
In Wales, people buying houses worth between £400,000 and £750,000 will have to pay 7.5% tax from April 2018.
Higher rates for second homes and buy-to-lets.
For second homes and buy-to-let properties you’ll usually have to pay an extra 3% on top of current stamp duty rates if buying a new residential property means that you will own more than one.
Property value SDLT Rate
Up to £125,000 3%
£125,001 to £250,000 5%
£250,001 to £925,000 8%
£925,001 to £1.5 million 13%
Over £1.5 million 15%
For example, if you bought a buy to let property for £325,000,
the Stamp Duty you owe is
* 3% on the first £125,000 = £3,750
* 5% on the next £125,000 = £6,250
* 8% on the final £75,000 = £6,000
Total SDLT = £16,000
Be wary if there’s a delay in selling your home and it hasn’t been sold on the day you complete the purchase of your new property, you’ll have to pay the higher rate as you will own two properties. However, you may be able to get a refund if you sell your home within three years. For more information, visit the Gov.UK website.
Tax break for first-time buyers
Government ministers changed the rules for first-time buyers to help them get a foot on the property ladder. They can claim a discount (relief) so they don’t pay any tax on a property up to £300,000 and 5% on the portion from £300,001 to £500,000. For example, if a first-time buyer pays £299,000 for a property there is no stamp duty owed. If they purchase a home worth £350,000, there is nothing to pay on the first £300,000 and 5% on the remaining £50,000, totalling £2,500 owed.
You’re eligible for the exemption if you and anyone else you’re buying with are first-time buyers.
If the property is worth more than £500,000, first-time buyers pay the same Stamp Duty as people who have bought a home before.
When do you have to pay Stamp Duty?
Stamp Duty is a self-assessed tax. This means it’s your responsibility to calculate the amount owed and make sure it’s paid on time. You need to send a SDLT return to Her Majesty Revenue and Customs (HMRC) and pay the tax you owe within 30 days of completing the purchase of your property. If you miss the deadline, there are financial penalties with interest. Typically, your solicitor will deal with the Stamp Duty return and any payment due although you can do it yourself. If the price of your new home is under £125,000 you must still send a return even though you won’t need to pay any Stamp Duty.
Shared ownership property
You may have to pay Stamp Duty Land Tax (SDLT) when you buy a property through a shared ownership scheme run by a housing association, local housing authority or development corporation. There is the option of either making a one-off payment or paying in stages. For example, if you buy a 50% share of a property with a market value of £150,000, you have to pay Stamp Duty of £500 (0% on £125,000 and 2% on £25,000). More Stamp Duty may be owed if you buy more shares in future.
There are also special rules and regulations for corporations, multiple purchases and transfers between the same buyer or seller (linked purchases).
For more information see the Gov.Uk website