Stamp Duty

A Guide to Stamp Duty

Have a read of our guide below on Stamp Duty and understand the costs of buying a home.


What is Stamp Duty Land Tax?


Stamp Duty Land Tax (SDLT) is a tax that is charged on land transactions involved in the buying of a residential property.

SDLT is a form of self-assessed transfer tax that was introduced by the Finance Act 2003 with effect from 1 December 2003. Although this replaced the previous Stamp Duty regulations, the alterations to Stamp Duty were minimal. Changes do, however, include that a tax return is made out to the HM Revenue & Customs (previously Inland Revenue). Reforms were introduced in December 2014, when the boundaries for Stamp Duty rates were changed, and particularly affect property purchases over £925,000.

From 1st April 2016, anyone buying an additional residential property, such as a second home or buy-to-let, must pay an extra 3% on top of existing SDLT. This announcement was made in Chancellor George Osborne’s 2015 Autumn Statement.

As of 22nd November 2017, First Time Buyers are exempt from paying Stamp Duty up to £300,000. There is further information being eligible for this exemption below.


How much Stamp Duty do you pay?


The rate of stamp duty you pay depends on the type of property, and whether it is residential or non-residential /mixed-use.

There are several rate bands for stamp duty and the tax is calculated on the part of your property that fall within each band.


Residential property stamp duty rates


Stamp duty is payable on the rate of tax on the part of the property price within each tax band.
The stamp duty rates for freehold sales and transfers, and most leasehold properties, are currently:

  • 0% on the first £125,000 paid (this includes shared ownership properties if the share is under £125,000)

  • 2% on the property price between £125,001 and £250,000

  • 5% on the property price between £250,001 and £925,000

  • 10% on the property price between £925,001 and £1,500,000

  • 12% on the property price of £1,500,001 and over

For example, a house priced at £260,000 would attract an SDLT of £3,000, whereby 2% will be paid on £125,000 to £250,000 of the purchase price, and 5% stamp duty will be paid on the remaining £250,001 to £260,000.
A house valued at £940,000 will pay a total of £37,750 and will range across 3 stamp duty percentage rates:
 

Purchase price bands (£).                   

Percentage rate (%)       

Up to 125,000

0%                             

125,001 to 250,000

2%

250,001 to 925,000

5%                      

925,001 to 1,500,000

10%                       

Above 1,500,000

12%                    

 

Stamp Duty for First Time Buyers


As of 22nd November 2017, first time buyers are exempt from Stamp Duty on properties up to £300,000. If they buy a property up to £500,000 they will pay no Stamp Duty on the first £300,000 and only pay on the remaining amount.

You will not need to do anything to qualify for this exemption – your conveyancing solicitor will ensure you meet the appropriate criteria.
 
You qualify for the Stamp Duty exemption if:

  • You are a first time buyer
  • You are buying a home that you will live in
  • Your property is below £300,000 (for no stamp duty at all)
  • Your property is under £500,000 (you will only pay stamp duty on the amount over £300,000)
  • Your property is not in Scotland or Wales. (Scotland has a slightly different scheme, please see below)

 
Make sure you know the definition of a first time buyer in this case:

  • You cannot have ever owned a property, even if you have now sold it (this includes inheritance)
  • You cannot have owned property abroad
  • If it is a joint purchase, both partners be first time buyers
  • You can own commercial property
  • As of the Autumn 2018 budget, Stamp Duty exemption for first time buyers will apply to Shared Ownership properties up to the value of £500,000. This will include both those who elect to pay the whole tax upfront, as well as those who pay a portion and then pay again when they staircase upwards and buy more of the property.

Mixed-use property stamp duty rates


Properties accepted as being mixed-use qualify for a lower stamp duty rate than residential properties.
For a mixed-use property you pay:

  • 1% on properties from £150,000 to £250,000

  • 3% on £250,000 to £500,000

  • 4% on properties worth over £500,000

According to the HMRC, a mixed-use property is one that shares both elements of a residential and non-residential property. For example a flat that is connected to a shop.

Non-residential property includes:

  • Agricultural land

  • Commercial property – e.g. a shop

  • Land or property that is not used as a residence

  • Forests

  • More than 6 residential properties bought in a single transaction


How do you pay stamp duty?


Your solicitor or conveyancer will generally deal with Stamp Duty on your behalf. As a rule of thumb, they tend to submit your return and pay the amount due on the date of completion, and either add the amount to their fees or (more commonly) collect the amount from you in advance. Stamp Duty must be paid within 30 days of the 'effective date' of completion.

Regardless of whether tax is payable on a property, you are obliged to provide a return to HM Revenue & Customs. If the return is not received within 30 days of the completion of the transaction, you could be issued with a fine.

It is impossible to register a change in the ownership of land without the Certificate that is provided by HM Revenue & Customs following the acceptance of a return.
 


Exemptions


There are certain situations in which you may be eligible for SDLT reliefs and exemptions. Stamp Duty reliefs can reduce the amount of tax you pay, however you must complete an SDLT return in order to claim, even if no tax is payable.

You don’t have to pay SDLT or file a return if:

  • property is left to you in a will

  • property is transferred because of divorce or separation

  • property is purchased over the £125,000 price band and the seller agrees to accept a lower offer

  • property is given as a gift or transferred with no money or other payment exchanging hands

  • property is a holiday lodge - any property that is movable is exempt

  • property is a houseboat - only purchases that use land space are taxable - unless your houseboat comes with a large garden, then you may still be charged


Stamp Duty for Buy-to-Let


In April 2016, the details of Stamp Duty for Buy-to-Let property changed. Now, the new Buy-to-Let Stamp Duty rules mean that if you are buying an additional property, you will have to pay an extra 3% in Stamp Duty. This includes Buy-to-Let landlords and those buying second homes and holiday homes.

You will not need to pay the higher rates if you are purchasing a caravan, mobile home or houseboat, and if the total property value is under £40,000, you will not be required to pay any SDLT.

It is important to note that if you purchase a new home before you have sold your first property you will also have to pay the additional 3% SDLT. If you are unable to sell your first home within 18 months of buying your new property, then you will not be entitled to reclaim the 3% SDLT surcharge.

 

Purchase price bands (£)

Old percentage rate (%)

New percentage rate (%)

Up to £125,000

0%

3%

£125,001 to £250,000

2%

5%

£250,001 to £925,000

5%

8%

£925,001 to £1,500,000

10%

13%

Above £1,500,000

12%

15%