We explain what Stamp Duty is and its role in the purchase of property.
When buying a home, it is important to understand all the costs involved. In England, Wales and Northern Ireland, you will need to make sure you budget for Stamp Duty before completing your purchase.
What is Stamp Duty?
Stamp Duty Land Tax – commonly referred to simply as Stamp Duty or SDLT – is a tax paid on land and property purchases. The amount you owe depends on the value of the property and whether it is residential or non-residential.
In 2015, Scotland replaced SDLT with Land and Buildings Transaction Tax, which functions similarly but with different rates.
When is Stamp Duty paid?
Stamp Duty must be paid when:
- you purchase a new or existing leasehold property
- you purchase a freehold property
- you purchase a property through a shared ownership scheme.
The tax applies regardless of whether you are buying the property outright or taking out a mortgage.
You must pay the tax within 30 days of completion. Generally, your solicitor, agent or conveyancer will be able to file the return for you and add the cost to their fees. However, it is still your responsibility to ensure that the correct amount is paid to HMRC.
How much is Stamp Duty?
Stamp Duty, like income tax, is tiered, and the total amount is calculated according to the cost of the property. You can use the HMRC Stamp Duty Land Tax calculator to work out how much you need to pay for a given transaction.
If the price of the property you’re looking to buy is just in one of the higher-rate bands, it can be worthwhile to ask the seller or estate agent if they would accept a lower price, so as to reduce the amount of the Stamp Duty you will pay.
When is Stamp Duty not paid?
There are some situations in which you will not need to pay Stamp Duty, although in most you will still need to file a return. Generally, if you are transferring property in a separation or divorce, as a gift or in a will then you will not have to pay Stamp Duty. If the property value is less than £125,000, SDLT will not apply either.
As every situation is different, it is always best to confirm with your solicitor or conveyancer whether or not you are required to pay the tax.
How does Stamp Duty differ for second homes?
If you are purchasing an additional residential property then instead of the £125,000 cut-off, you must pay the tax on properties valued at £40,000 or more. An extra 3% will be added to each rate band as well.
If you are buying a new primary residence but there is a delay in selling your current residence, you will have to pay the higher rates. However, you can claim a refund against the amount if the property is sold within three years.