Stamp Duty

There are a lot of costs to consider when buying a new home, but one of the largest is Stamp Duty Land Tax. It's important to be aware of this tax, because without sufficient preparation it can take you by surprise and affect your final purchase. In this guide article, we're going to examine Stamp Duty and explore its current rates and method of calculation.

What is Stamp Duty Land Tax?

Stamp Duty Land Tax or SDLT is a proportionate government tax on the purchase of property or land in England and Northern Ireland. The more you pay in your land and buildings transaction, the more tax you are obligated to pay.

Why is it called Stamp Duty?

The term Stamp Duty is thought to derive from taxation in 17th century Spain. The tax was called Stamp Duty because a physical stamp was printed on the document to demonstrate proof of payment. Today, Stamp Duty is used throughout the world. As a levy on residential property purchase, it's one of the most basic forms of tax that governments demand from their citizens.

Why do you have to pay Stamp Duty?

Like any tax, Stamp Duty is a means for the government to raise capital. Without capital, the government would not be able to pay for national defence, health, welfare and social services.

How much is Stamp Duty?

Stamp Duty is currently between 2% and 12% on properties above the 0% threshold. How much Stamp Duty you pay depends on how expensive your residential property is. Stamp Duty is a proportional tax, which means the tax increases in bands (or thresholds) and each band requires a larger payment. There are usually four or five bands.

What is the Stamp Duty threshold?

• The Stamp Duty threshold for England and Northern Ireland is £2500,000.
• In Scotland, the threshold for Lands and Buildings Transaction Tax is £145,000
• In Wales, the threshold for Land Transaction Tax is £180,000.

Stamp Duty rates

Below are the current Stamp Duty rates for England and Northern Ireland as of 23rd September 2022, to be reviewed again on the 31st March 2025.

Stamp duty if you’re a first-time buyer

You can claim tax relief when you buy your first property:

• No SDLT on properties priced up to £250,000
• 5% SDLT on properties priced from £250,001 to £925,000
• 10% SDLT on properties priced from £925,001 to £1,500,000
• 12% SDLT on properties priced over £1,500,000

Who is classed as a first-time buyer for Stamp Duty?

A first-time buyer is someone who has never previously purchased or owned a property in the UK or abroad. A first-time buyer must be purchasing their property to live in as their main residence. If you're part of a couple, both of you must be classed as first-time buyers to benefit from this relief.

Stamp duty if you own a second home

If you already own a property and you purchase another, you have to pay an additional 3% on top of the SDLT band your second home or additional property purchase price falls under.

Stamp Duty calculator

Stamp Duty isn't difficult to work out by yourself, but if you're short on time, a calculator can come in handy. The best calculator available is the SDLT Calculator on the Gov.uk website - it keeps track of all the latest changes to Stamp Duty and takes account of anything that counts towards relief.

How to calculate stamp duty (without a calculator)

Calculating SDLT might sound like a chore, but it’s easier than you’d think.

1. First, write down your property price.
2. See which tax band it falls under.
3. Take the corresponding percentage cut from the amount you exceed the band by.
4. This is how much SDLT you owe.

Here's an example:

If you bought a house for a purchase price of £500,000, you would fall under band three (£250,001 to £925,000). So, you calculate how much £500,000 exceeds £250,001. This is £250,000, give or take a pound.

Finally, you take the band's percentage, 5%, from £250,000, which is £12,500.

So, if you purchased a £500,000 house, you can expect to pay £12,500 in SDLT.

Do you have to pay Stamp Duty?

Yes, if you are a UK citizen living in England or Northern Ireland you are expected to pay stamp duty on any land transaction you make if the purchase amount falls under SDLT bands.

Who pays Stamp Duty?

The person who pays Stamp Duty is the same person who bought and purchased the land or property. If the property was bought under a joint ownership agreement, SDLT will be charged to the same bank account that the mortgage and property funds came out of.

Can you avoid Stamp Duty?

No, you can’t avoid the Stamp Duty Land Tax, but there are a couple of ways you can reduce it.

1. Usually if you buy a property to live in before you sell your current residence, you have to pay Stamp Duty. But if you sell your old property within 3 years, you can get the surcharge refunded!
2. If you're buying a property with someone who already owns a home (and want to put both names on the deed), you will have to pay a 3% SDLT second home charge. However, if the other person sells their previous home, you can reclaim the extra cost. You can also avoid paying Stamp Duty by registering the property solely in your name - that way, the other person can keep their previous property and move in with you without paying the surcharge.

Who doesn't have to pay Stamp Duty?

If you meet certain conditions, you don't need to pay Stamp Duty Land Tax on your property purchase. There's a large number of exceptions to SDLT, so it's worth checking whether you meet one of them.

You don't have to pay SDLT if:

• No money or payment changes hands during the property or land transfer.
• The property is left to you in a will.
• The property is transferred as a result of a divorce or dissolution of a civil partnership.
• You buy a new or assigned lease of 7 years or more - as long as the premium is less than £40,000 and the annual rent is no more than £999.
• You buy a new or assigned lease of 7 years or more - as long as the premium is less than the SDLT band thresholds.
• You buy a freehold property for less than £40,000.

Stamp Duty relief

If your property transaction falls under certain criteria, you can apply for relief from SDLT.

As mentioned earlier, if you are a first-time buyer, you can claim relief with:

• No SDLT on properties priced up to £300,000
• 5% SDLT on properties from £300,001 to £500,000

There are some other transactions that qualify for relief:

Stamp Duty relief for multiple dwellings

If you buy more than one dwelling where a transaction included freehold or leasehold interests in more than one dwelling, you can claim SDLT relief. The minimum rate for tax with this type of relief is 1% of the amount paid for the properties.

If a building company buys a residential property

If a building company buys a residential property from someone who is buying property from them (like if you’re in a part exchange programme), the property bought by the building company is exempt from SDLT - as long as:

• The area of land around the home that the building company buys along with the property does not exceed 0.5 hectares.
• The person selling the home has lived in the property as their main residence for at least 2 years.
• The person selling the home buys a new home from the building company.
• The person selling the home intends to live in this new property.

When an employer buys an employee's property

If an employer buys an employee's property because they are relocating with work, the property purchase is exempt from SDLT as long as:

1. The employee has lived in the property as their main residence for at least 2 years.
2. The employee is moving due to job relocation
3. The price the company pays does not exceed the property's genuine market value
4. The area of land around the home that the employer buys along with the property does not exceed 0.5 hectares.

Stamp duty on right to buy properties

Right to buy properties are dwellings that are purchased at a discount because of local housing authorities (council homes) or a preserved right to buy. SDLT is calculated through the discounted price that the buyer pays.

For more information on SDLT exemptions and relief, please refer to the HMRC Stamp Duty Land Tax Manual.

What are the new rates for Stamp Duty for non-UK residents from 1st April 2021?

If you're not living or present in the UK for 6 months during the 12 months before your property purchase, you are not classed as a UK resident in terms of SDLT. If you're buying residential property in England or Northern Ireland, you will have to pay an extra 2% surcharge on top of standard Stamp Duty rates.

Stamp Duty in Scotland

If you live in Scotland, Stamp Duty is called Lands and Buildings Transaction Tax or Residential LBTT. The current rates for LBTT (2021/2022) are as follows:

Stamp Duty in Wales

If you live in Wales, Stamp Duty is called Land Transaction Tax or LTT. The current rates are as follows:

Who is Stamp Duty payable to?

When you purchase a property, your conveyancer or solicitor will usually pay Stamp Duty on your behalf and request reimbursement on completion day.

Stamp Duty is paid to HM Revenue and Customs.

What's the fine for not paying Stamp Duty?

The financial repercussions for not paying Stamp Duty can be extreme, so make sure you pay as and when required.

If you fail to notify HMRC by the notification deadline date, you will have to pay a series of penalties:

• From penalty due date: £100
• 6 months from penalty due date: £300 or 5% of undeclared tax, whichever is more. This is in addition to the £100 above.
• 12 months from penalty date: £300 or 5% of undeclared tax, whichever is more. This is in addition to the £100 above.

HMRC will request further penalties to the above, if you fail to make good on the above payments.

If you make a late payment to HMRC, you will be liable for further penalties:

• 31 days from penalty due date: 5% of unpaid tax
• 5 months after the penalty due date: A further 5% of the unpaid tax
• 11 months after the penalty due date: A further 5% of the unpaid tax

How to check if Stamp Duty has been paid

Usually, your conveyancer or solicitor will provide a receipt to prove that they have processed and paid Stamp Duty on your behalf. If you want to make further checks, you can ask your conveyancer for the Unique Transaction Reference Number (UTRN) and ring up the HMRC Stamp Duty Land Tax Helpline service. They will confirm whether or not they have received payment after you provide them with the UTRN.