Guide to Stamp Duty

You are required to pay Stamp Duty Land Tax (SDLT) when you purchase a residential home in England or Northern Ireland. Stamp Duty is payable on properties that you are buying for more than £125,000. 

Here we take a look at what is Stamp Duty, Stamp Duty for first-time buyers, Stamp Duty for second homes, joint ownership Stamp Duty, and when and how to pay Stamp Duty.

What is Stamp Duty?

Stamp Duty is a tax on residential property or a parcel of land costing more than £125,000. For second homes, the fee is payable from £40,000 or more. Stamp Duty applies to leasehold and freehold properties, purchased with or without a mortgage.

The amount of Stamp Duty payable is based on the purchase price of the property. You will pay a percentage for every group that your property price covers:

  • £0 – £125,000 0%
  • £125,000 – £250,000 2% 
  • £250,001 – £925,000 5%
  • £925,001 – £1.5M 10%
  • Over £1.5 million 12%

This means that if the purchase price of the property is £300,000, then your Stamp Duty fee will be 0% of the first £125,000 (£0), plus 2% on the next £125,000 (£2,500), plus 5% on the next £50,000 (£2,500).

In Wales, the equivalent to Stamp Duty is called Land Transaction Tax (LTT), and in Scotland, it is called Land and Buildings Transaction Tax (LBTT).

For Scotland, the Land and Buildings Transaction Tax is charged on properties over £125,000. The groups and percentages are as follows:

  • £0 – £145,000 0%
  • £145,001 – £250,000 2% 
  • £250,001 – £325,000 5%
  • £325,001 – £750,000 10%
  • Over £750,000 12%

For Wales, the Land Transaction Tax is charged on properties over £180,000. The groups and percentages are as follows:

  • £0 – £180,000 0%
  • £180,001 – £250,000 3.5% 
  • £250,001 – £400,000 5%
  • £400,001 – £750,000 7.5%
  • £750,001 – £1.5M 10%
  • Over £1.5 million 12%

Stamp Duty for first-time buyers

In England and Northern Ireland, if you are a first-time buyer, in the UK or abroad, then there is no Stamp Duty on properties worth up to £300,000. If you purchase your first home for up to £500,000, you will pay no stamp duty on the first £300,000, but you will pay Stamp Duty on the next £200,000.

There is no first-time buyer’s relief for homes over £500,000, and you will pay the standard Stamp Duty rates. However, homes bought under the Shared Ownership schemes of up to £500,000 receive first-time buyer tax rates.

Stamp Duty for second homes

A second home is an additional property to your primary residence. Second homes include buy-to-let properties and holiday lets. Stamp Duty is payable on property values of £40,000 or more. You will pay an additional 3% on top of the regular Stamp Duty rates.

Stamp Duty applies if you have purchased a new home, but you have not sold your old home, although you can ask for a refund if your old home is sold within three years of buying your new home. You must apply for a refund within three months of selling your old home or within twelve months of filing your SDLT tax return.

There are some exceptions to Stamp Duty on second homes, and these include houseboats, mobile homes, and caravans.

For Scotland, the Land and Building Transaction Tax on second homes incur an additional 4% fee on top of the standard rates. For Wales, the Land Transaction Tax on second homes incurs an additional 3% fee on top of the standard rates. 

Joint ownership Stamp Duty

For married couples, both parties need to be first-time buyers to enjoy the first-time buyer Stamp Duty tax reduction. Unmarried couples can claim for a reduction in Stamp Duty if one party is a first-time buyer, and only their name is on the mortgage deed.

However, how much a bank or building society will offer as a mortgage will be based solely on the income of the first-time buyer. This means that you may not be able to borrow enough money to get the home you desire. 

Secondly, if you split up, the non-first-time buyer may have no claim against the property and be left with nothing. This means that there are severe implications that married couples need to consider.

When and how to pay Stamp Duty

Within 14 days from the purchase completion date, you are required to create a Stamp Duty Land Tax return and to pay the tax. Penalties and interest from HMRC can be incurred if you do not submit your tax return and pay your Stamp Duty.

You can pay Stamp Duty yourself, but typically your solicitor or conveyancer will take care of this for you. It is your responsibility to make sure it is paid within the time constraints. If you decide to complete this step, then HMRC accepts Stamp Duty payments over the telephone, online, at the post office, a bank, or building society.

You should be aware that for homes under £125,000, you still need to submit an SDLT return. Also, if you exchange properties with someone, then both parties must pay Stamp Duty.

 There are a few exemptions to Stamp Duty, and these include:

  • When a transfer of deeds is a gift or as part of your will, you will not pay stamp duty on the market value of the property. However, you may have to pay other taxes such as inheritance tax.
  • When a transfer of ownership is made as part of a divorce or separation.

For England and Northern Ireland, you can find further information on the Stamp Duty Land Tax website. For Scotland, you can find more information on the Land and Buildings Transaction Tax website. For Wales, more information can be found on the Land Transaction Tax website.