Understanding Stamp Duty: What You Need to Know

14 January 2019

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Does the phrase ‘Stamp Duty Land Tax’ leave you feeling confused and lost? In this blog post, we help you to understand what Stamp Duty is, how it’s paid and who has to pay it.

Essentially, anyone buying residential property in England or Northern Ireland is required to pay Stamp Duty Land Tax. In Scotland and Wales, you need to look out for the equivalent: Land Transaction Tax. However, today we’re focusing on Stamp Duty. It is basically a tax that is levied on lots of official documents. In this case, your house purchase papers. With freehold, it’s relatively simple. You take the property’s value and work out your Stamp Duty from that. However, with leasehold, you need to work out your SDLT from the ‘purchase price of the lease‘.

How to work out your SDLT

Value of property or lease premium Stamp Duty rate
Up to £125,000 0%
£125,000 to £250,000 2%
£250,000 to £925,000 5%
£925,000 to £1.5million 10%
£1.5million+ 12%

This may look relatively simple but there are a few things you need to consider first. If the entire value of your property is below £125,000, then no, you don’t need to pay Stamp Duty Land Tax. However, if the value is above £125,000, things get a little complicated. You won’t simply pay the percentage shown on the right of the table for the entire value of your home. In fact, you’ll pay the percentage for each portion of your home’s value. For example, imagine the home you are buying is £300,000: you’ll pay nothing on the first £125,000. You’ll pay 2% on the amount that takes you up to £250,000 (in this case, 2% of £125,000) and then 5% on the amount that takes you up to £300,000 (5% of the remaining amount – £50,000). It’s important to take this into consideration as you could easily be fooled into thinking you’ll pay 5% on the property’s entire value as it’s worth over £250,000.

Calculate how much Stamp Duty you’ll pay on your new property here.

Who is exempt and who has different rates?

Although this may sound confusing at first, once you’ve got the hang of it you’ll definitely be better off than you initially thought. And don’t forget! If this is the first time you’ve ever bought a home: you won’t pay any Stamp Duty Land Tax on the first £300,000. This is a new initiative brought in by the government in November 2017 to encourage more first-time buyers to get on the property ladder! Anything above £300,000 (and up to £500,000) will be charged a 5% discounted tax. Buying a home above £500,000 as your first property? Lucky you. However, you’ll be subject to the normal rates on any value above £500,000.

There are other exemptions and relief rates, too. These include:

What about owning more than one home?

Essentially, the standard rate of Stamp Duty applies to anyone buying a home that a) isn’t their first home and b) will be their only home once they’ve purchased it. Buying a second home (worth over £40,000) whilst keeping another will result in you paying higher rates. These are as follows:

Value of property or lease premium Stamp Duty rate
Up to £125,000 3%
£125,000 to £250,000 5%
£250,000 to £925,000 8%
£925,000 to £1.5million 13%
£1.5million+ 15%

When do you pay Stamp Duty Land Tax?

Basically, your Stamp Duty Land Tax is due for payment within 30 days of the completion of your purchase. You can fill out a return here and send it off to HM Revenue & Customs yourself. However, if you have a solicitor acting on your behalf (most people do), they will usually fill this return out for you and add the cost to their fees on the completion date. They’ll let you know if this is part of their service so if it’s not, make sure you ask them to include it or fill out the form yourself. Beware – you can be charged penalties and interest for not returning your SDLT form within the 30 days.

If you have any more questions about paying Stamp Duty, please don’t hesitate to get in touch with us or alternatively, visit the government website for the latest up-to-date information.

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