Complete guide to Stamp Duty

Woman sat on the floor of her house signing documents with a house sold sign behind her

Stamp Duty is a major cost to budget for when it comes to purchasing your next property or first home. If you’re getting ready to make the leap and buy your first house, you’re moving to a new property or buying a second property, we’re here to take you through everything you need to know about how much Stamp Duty costs and when you need to pay.

What is Stamp Duty?

Stamp duty is a type of tax you will need to pay when buying a home. But it’s important to understand that not everyone has to pay stamp duty.

If you’re purchasing a residential property in England or Northern Ireland, you won’t have to pay Stamp Duty on the first £125,000 of the property’s price. If you’re a first time buyer, this is extended to the first £300,000 of the property’s purchase price, and then 5% for any amount above £300,000 up to £500,000. If the purchase price is over £500,000 you will pay Stamp Duty at the home mover rate.

There are some other specific rules if you’re purchasing property outside of England:

  • If you live in Wales, you’ll need to pay Land Transaction Tax (LTT) on homes that cost more than £180,000.
  • In Scotland, the LTT is renamed Land and Buildings Transaction Tax (LBTT), which is paid on homes that cost more than £145,000 (£175,000 for first time buyer).

Your solicitor should handle the payment to HMRC, but remember you only have 14 days to pay your Stamp Duty after you get the keys to your new house.

Who pays Stamp Duty?

It is always the buyer who pays Stamp Duty, never the seller. It’s very common that your solicitor will pay it on your behalf as part of the purchasing process.

It’s not as straightforward when it comes to first-time buyers; While it is true that first-time buyers qualify for certain exemptions, that doesn’t mean all first-time buyers are free from Stamp Duty charges.

For example, the discounted Stamp Duty rate only applies to properties that sell for less than £500,000. Standard Stamp Duty rates apply on any purchases above this price.

If you’re not sure if you have a liability for SDLT (Stamp Duty land tax), you can speak to HMRC or the lawyer handling your purchase.

What if I’m buying a second home?

If you are buying a second home in England and Northern Ireland that is more than £40,000, you’ll need to pay an extra 3% Stamp Duty (additional rates apply in Scotland and Wales).

This applies to:

Second homes
Buy to Let properties
Holiday homes

It doesn’t apply to:

Caravans
Mobile homes
Houseboats

It’s also worth bearing in mind that you may have to pay a higher tax rate if you manage to get the keys to your new home before you sell your current property. You can, however, apply for a refund on the government website once your first home has been sold.

How do I calculate my Stamp Duty bill?

Stamp Duty is calculated in the same way as income tax. So if the agreed price of a home is £550,000, you pay:

0% on the first £250,000 = £0
5% on the next £675,000 (the portion from £250,001 to £925,000)
10% on the next £575,000 (the portion from £925,001 to £1.5 million
12% on the remaining amount (the portion above £1.5 million)

The rules around Stamp Duty changed on the 23rd September 2022, so we advise you speak to HMRC or your solicitor if you have any questions or are unsure what you will need to pay.

Are there any exemptions?

There are a number of other Stamp Duty exemptions including:

  • Homes that are registered to companies not individuals and cost more than £500,000 have a Stamp Duty rate of 15%.
  • Properties worth less than £40,000 are completely exempt from Stamp Duty
  • Charities can get Stamp Duty relief when they buy land and property for charitable reasons.
  • Right-to-Buy transactions often qualify for discounts.
  • Registered social landlords can get relief when buying land or property.
  • Zero-carbon homes and flats under £500,000 are exempt. If over £500,000 their bill is reduced by £15,000.
  • Homes that are inherited will be exempt from Stamp Duty charges

A full list of Stamp duty exemptions and reliefs can be found on the HMRC website.

That’s it! Hopefully we’ve answered all the questions you could possibly have about Stamp Duty and you’re now a lot clearer on the process. But if you have any more questions or would like to speak to someone about your mortgage options, get in touch with us today!

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