Stamp duty – or Stamp Duty Land Tax (SDLT) to give it its full title – is tax that becomes due when you buy property or land in England or Northern Ireland that costs above the qualifying threshold.
The current SDLT threshold is £125,000 for residential properties and £150,000 for non-residential land and properties. The threshold on second homes is £40,000. Different rules apply in Scotland and Wales.
How much is stamp duty on residential property?
Fees are banded, in much the same way as income tax. If you are moving home, the following rates apply:
Over £1.5m: 12%
If you are buying a second home or holiday home valued at more than £40,000, a 3% premium is added to each band:
Over £1.5m: 15%
Stamp duty for first-time buyers
First-time buyers, including those in shared ownership schemes, may qualify for tax relief. If they buy a property costing up to £300,000, they don’t have to pay any stamp duty. However, if they buy a property costing over £500,000, they lose their tax relief and are liable for the full amount.
So, if a first-time buyer buys a property for £495,000, they’ll pay stamp duty at 5% on £195,000 (£9,750), but if they buy a property for £505,000, they’ll pay:
First £125,000 @ 0% = £0
Next 125,000 (to £250,000) @ 2% = £2,500
Remaining £255,000 (to £505,000) @ 5% = £12,750
Stamp duty for buy-to-let
If you’re buying a property for buy-to-let – unless you’re a first-time buyer – you have to pay an additional 3% stamp duty on each home-mover rate band.
Over £1.5m: 15%
If you’re a first-time buyer buying a buy-to-let property, you are charged the standard home-mover rates.
Stamp duty exemptions and reductions
If you buy a property for less than £300,000 as a first-time buyer, or £125,000 as a home-mover, then your purchase is not subject to stamp duty.
If the price of a property would just tip it into a higher band, then it’s worth asking if the seller would take a bit less. In the first-time buyer example above, getting the price down to £500,000 would mean a saving of £5,250 on the stamp duty.
If you make a gift of your property to someone, or leave it to them in your will, they don’t have to pay stamp duty on the value.
If you are lucky enough to be given a property and then later want to buy somewhere, even if you have never bought property before, you won’t qualify for first-time buyer’s relief. Despite the name, it’s based on owning, not buying, a property.
If you are separating from a partner, divorcing or dissolving a civil partnership, and one party is going to take sole ownership of a jointly-owned property, take advice on how to deal with it. Depending on the circumstances you may be able to avoid stamp duty.
How to pay
If you make a purchase that is subject to stamp duty you need to submit an SDLT return to HMRC and pay the amount due within fourteen days. Your conveyancer or solicitor will normally do this on your behalf, and also claim any relief for which you’re eligible.