Stamp Duty Explained!

In this blog, we explain exactly how the stamp duty actually works, so you can work out how much you’ll need to pay when making your first or next purchase!

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What is Stamp Duty

In England and Northern Ireland you’re liable to pay Stamp Duty when you buy a residential property, or a piece of land, that costs more than £125,000 (or more than £40,000 for second homes). This tax applies to both freehold and leasehold properties – whether you’re buying outright or with a mortgage.

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Buying Your next home?

E.g House price: £420,000

Amount stamp duty payable on: £295,000

Stamp duty payable : £11,000 

(The effective rate is 2.62%)

Stamp duty for first-time buyers?

In the 2017 Budget, new rules came into play with immediate effect. Now first-time buyers pay zero stamp duty on the first £300,000 of any home that costs up to £500,000. This means on a home worth less than £300,000, you'll pay no stamp duty. However, you must pay 5% stamp duty on the portion between £300,001 and £500,000. That means the stamp duty threshold for first-time buyers is as follows:

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If the property you are buying is over £500,000, you will pay the standard rate of Stamp Duty and will not qualify for first-time buyers relief.

If the property you want to buy is worth £420,000, you will only pay Stamp Duty on £120,000.

E.g House price: £420,000

Amount stamp duty payable on: £120,000

Stamp duty payable : £6,000 

(The effective rate is 1.43%)

Stamp duty on second homes?

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Buyers of additional residential properties, such as second homes and buy-to-let properties, will have to pay an extra 3% in Stamp Duty on top of current rates for each band. This increased rate applies to properties bought for £40,000 or more.

If you buy a new main residence but there’s a delay in selling your previous main residence, you’ll have to pay the higher Stamp Duty rates as you’ll now own two properties.

You can request a refund for the amount above the normal Stamp Duty rates if:

  • You sell your previous main residence within three years, and you claim the refund within three months of the sale of your previous main residence, or within 12 months of the filing date of your self-assessment tax return, whichever comes later.
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E.g House price: £420,000

Amount stamp duty payable on: £420,000

Stamp duty payable : £23,600 

(The effective rate is 5.62%)

Other Stamp duty exemptions?

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It's not just first-time buyers who no longer have to pay stamp duty, there are a few other types of property transactions where you don’t have to pay stamp duty. These include:

  • If the property is left in a will
  • A divorce or separation where one partner is transferring their share of the property to the other
  • If the property is a gift
  • If you buy a freehold property for less than £40,000

You can find more about stamp duty exemptions on the Gov.uk website.

Use the SDLT calculator to work out how much tax you’ll have to pay.

How to pay Stamp Duty?

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Usually, your solicitor will deal with the Stamp Duty return and any payment due for you, although you can do it yourself. Either way, you’re responsible for making sure it’s all submitted on time.

You’ll need to submit a Stamp Duty Land Tax return and pay what you owe within 30 days of completing the purchase of your home.

If you don’t submit a return and pay the tax within 30 days, HMRC might charge you penalties and interest.

If you would like to discuss this in more detail or looking for solicitors to help you make your first or next purchase complete this form and a representative from our Conveyancing partner Mullis & Peake will get back to you.