Whether you’ve finally saved up enough money to jump on the property ladder or you’re upsizing from your current home, buying a home is a fantastic achievement! Nevertheless, there’s quite a lot you’ll need to consider when purchasing a property and moving house – including factoring in stamp duty.
You may have heard the phrase being floated about before, but what exactly is stamp duty, and how much might you need to pay? Here we detail all the nitty-gritty about this necessary tax for property buyers.
What is stamp duty?
Stamp Duty Land Tax (SDLT) is a type of government tax. You’ll need to pay stamp duty if you’re planning on buying residential property or land worth over a certain amount of money. As with many other taxes, SDLT typically goes towards funding public services.
The types of property you’ll need to pay stamp duty on include:
Leaseholds (you own the property, but lease the land it sits on for a set number of years)
Freeholds (you own the property and the land it sits on)
Shared ownership scheme properties
Land or property that’s been transferred to you. For example, because you received a share in something, inherited it or received it as part of a settlement (e.g. in a divorce or separation)
It doesn’t matter whether you’re buying a property with a mortgage or cash; you’ll still be liable to pay stamp duty.
How much is stamp duty?
While the types of property listed above are all subject to stamp duty, how much you’ll need to pay all depends on the property’s value.
‘Threshold’ is the term used to work out when stamp duty will start to apply to your property purchase. Once your property value has gone over a certain threshold, you’ll need to start paying stamp duty tax at the set rates. The rate is then calculated as a percentage of your property’s total value.
In England and Northern Ireland, the following thresholds and rates apply for residential property:
For property worth under £125,000, you’ll pay 0% in stamp duty
For property falling between £125,001 to £250,000, you’ll pay 2% stamp duty on anything over £125,000
For property between £250,001 and £925,000, you’ll pay an additional 5% stamp duty on anything over £250,000
For property worth £925,001 to £1.5m, you’ll pay an extra 10% stamp duty on anything over £925,000
If your property is priced at over £1.5m, you’ll have to pay an additional 12% on anything over £1.5m
If you can’t quite get your head around that, here’s a quick example to simplify it. Say you’ve had an offer of £425,000 accepted on a house. You’ll have to pay the following in stamp duty:
£0 for the first £125,000
£2500 for the next £125,000 (approximately 2%)
£8750 for the remaining £175,000 (approximately 5%)
That puts your total stamp duty at £10,250. An easier way to work out how much you might need to pay for your property in England or NI is to use our handy stamp duty calculator.
Stamp duty for second homes
If you’re buying a second home or a buy-to-let property, SDLT works in a slightly different way. You’ll still have to pay the same rates as you would if it was your primary property, but you’ll also pay an additional stamp duty rate too.
In England and NI, the rates for second homes are as follows:
For properties worth between £0 and £500,000, you’ll pay 3% of the total value in additional tax
For properties between £500,001 and £925,000, you’ll pay an extra 8% stamp duty on anything over £500,000
For properties valued between £925,000 and £1.5m, you’ll pay an extra 13% stamp duty on anything over £1.5m
For properties over £1.5m, you’ll pay 15% stamp duty on anything over £1.5m
There are some exceptions to this. For instance, second properties worth less than £40,000 in addition to motorhomes, mobile homes and houseboats are not subject to stamp duty.
Stamp duty around the UK
The rules around stamp duty can be different depending on which part of the UK you live in. While the above thresholds and stamp duty rates apply to England and Northern Ireland, you’ll find Wales and Scotland have slightly different rules.
Stamp duty in Scotland
If you call Scotland home (or you’re buying property or land there), you’ll find stamp duty is known as the Land and Buildings Transaction Tax (LBTT). This is typically applied to both residential and non-residential properties.
When it comes to LBTT for residential homes in Scotland, you’ll need to pay the following rates:
For property worth under £145,000, you’ll pay 0% tax
For property worth between £145,501 and £250,000, you’ll pay 2% tax on anything over £145,000
For property worth between £250,001 and £325,000, you’ll pay 5% tax on anything over £250,000
For property valued between £325,001 and £750,000, you’ll pay 10% on anything over £325,000
For property over £750,000, you’ll pay 12% tax on anything over that
If you’re buying a second home or buy to let in Scotland, you’ll have to pay an LBTT Additional Dwellings Supplement. This is usually an additional 4% of the total price on top of the rates listed above.
Stamp duty in Wales
In Wales, stamp duty is called Land Transaction Tax (LTT). This was introduced in 2018, and it’s applied to all property and land worth over a certain amount.
The threshold for paying LTT in Wales is £180,000. This means you’ll only pay stamp duty (or LTT) on properties worth over this amount. The rates for LTT are as follows:
For property worth between £180,001 and £250,000, you’ll pay 3.5% tax on anything over £180,000
For property worth between £250,001 and £400,000, you’ll pay 5% tax on anything over £250,000
For property between £400,001 and £750,000, you’ll pay 7.5% tax on anything over £400,000
For property valued between £751,000 and £1.5m, you’ll pay 10% tax on anything over £750,000
For property worth over £1,5m, you’ll pay 12% on anything over £1.5m
Finding all these rates a little confusing? Our stamp duty calculator lets you filter by country, so you’ll be able to work out your total stamp duty regardless of where you’re buying.
Stamp duty exemptions and relief
In some cases, you might be eligible for stamp duty relief or an exemption. This is when you’re not liable to pay stamp duty on the property you’re purchasing.
First-time buyers
Jumping on the property ladder for the first time? Congratulations! To give you a little leg-up, you’ll be glad to hear that you’ll probably get away with paying no stamp duty or a reduced stamp duty rate. The thresholds for first time buyer stamp duty are as follows:
England and NI – you’ll only pay stamp duty on anything over £300,000. You’ll then pay 5% on anything between £300,001 and £500,000. Buying something over this? You won’t qualify for a stamp duty relief
Scotland – for first-time buyers, the threshold for paying stamp duty is £175,000. This means you’ll pay nothing in LBTT for anything under this amount
Wales – if you’re buying your first home in Wales, the threshold for first-time buyer LTT sits at £180,000. For properties worth more than this, the standard rates will apply
Multiple dwellings
If you’re buying several freehold or leasehold properties at once (like to use as buy-to-lets within the same development), you could qualify for some kind of stamp duty relief.
Instead of paying higher rates for the properties’ combined cost, you’ll be charged for each property. For example, say you buy 5 flats or houses worth £150,000 each from the same developer. You won’t have to pay higher stamp duty rates on the total £750,000; you’ll pay lower rates on each £150,000.
How to pay stamp duty
Now you have some idea of what to expect with your stamp duty land tax, it’s worth knowing exactly how and when this should be paid.
In England and NI
You’ll typically pay stamp duty within 14 days of completing the purchase of your property. This is when you get all the contracts signed and are handed the keys to your new home.
Typically, your solicitor or a conveyancer will pay the stamp duty on your behalf by submitting a tax return with HMRC. Even so, it’s ultimately your responsibility to pay it, and it falls on you to ensure it’s done on time.
In Scotland
You’ll have slightly longer to pay your Land and Buildings Transaction Tax if you’re buying in Scotland. There, you have 30 days from the date of completion to submit a tax return to Revenue Scotland (or to get your solicitor to do it for you).
In Wales
Wales also gives you 30 days to pay your Land Transaction Tax. You can either do this yourself online or by post to the Welsh Revenue Authority or get your solicitor to do it on your behalf.
Claiming back stamp duty
There are certain cases when you might be entitled to a repayment of stamp duty tax. One of the most common reasons is if you’ve bought a new home and completed all the paperwork. Yet, you’re still waiting to sell your previous primary residence.
As you’ll technically own 2 properties simultaneously, the cost is combined. It can push you up into a higher stamp duty threshold. Thankfully, there is a way to claim back some of the higher rate stamp duty tax if:
You sell your previous home within 3 years of purchasing the new one
You submit a stamp duty refund claim within 3 months of that sale going through or within 12 months of submitting your original stamp duty tax return
These rules apply to England, Northern Ireland and Wales. Note that in Scotland, the length of time you have to sell your previous home and still qualify for a stamp duty refund is 18 months. However, you can currently apply for an extension in some cases.
Stamp duty holidays
You might be lucky enough to take advantage of a stamp duty holiday. This is when the government decides to increase the threshold for a 0% rate. From July 2020 to 31 March 2021 (30 June 2021 in England and NI), there’s a stamp duty holiday in place across the UK with the following revised rates:
In England and NI, you’ll pay no stamp duty if your home is worth less than £500,000. From 1st July to 30th September, the threshold will be reduced to £250,000 before returning to the pre-pandemic figure of £150,000 from October
In Scotland, the stamp duty land tax holiday allows you to pay nothing on properties worth under £250,000
In Wales, you’ll also pay 0% land transaction tax rates on properties purchased for less than £250,000
Before you make an offer and consider your stamp duty tax, you’ll want to compare mortgages and work out what mortgage providers might be willing to lend to you. Why not use our mortgage calculator, which gives you an estimate of what you could be eligible to borrow for your future home?