Sam Edwards
Senior Writer & Researcher
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.
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.
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.
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.
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.
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.
Market price | Basic SDLT rate | Higher SDLT rate |
---|---|---|
Up to £250,000 | 0% | 3% |
£250,001 - £925,000 | 5% | 8% |
£925,001 - £1,500,000 | 10% | 13% |
Over £1,500,000 | 12% | 15% |
You can claim tax relief when you buy your first property:
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.
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 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.
Calculating SDLT might sound like a chore, but it’s easier than you’d think.
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.
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.
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.
No, you can’t avoid the Stamp Duty Land Tax, but there are a couple of ways you can reduce it.
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:
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:
There are some other transactions that qualify for relief:
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 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:
If an employer buys an employee's property because they are relocating with work, the property purchase is exempt from SDLT as long as:
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.
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.
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:
Market price | Basic LBTT rate |
---|---|
Up to £145,000 | 0% |
£145,001 - £250,000 | 2% |
£250,001 - £325,000 | 5% |
£350,001 - £750,000 | 10% |
Over £750,001 | 12% |
If you live in Wales, Stamp Duty is called Land Transaction Tax or LTT. The current rates are as follows:
Market price | Basic LTT rate |
---|---|
Up to £225,000 | 0% |
£250,001 - £400,000 | 6% |
£400,001 - £750,000 | 7.5% |
£750,001 0 £1,500,000 | 10% |
Over £1,500,001 | 12% |
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.
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:
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:
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.
If you purchase a buy to let property, you will be required to pay the 3% Stamp Duty surcharge surcharge on top of normal rates. This is because a buy to let property does not count as a main form of residence, which means you are subject to higher fees.
Yes, you can add SDLT to your mortgage, but this will increase the interest rate of your mortgage and affect your Loan to Value ratio (LTV). You will have to find a way of reducing your deposit so that the deposit and mortgage add up to the purchase price.
LTV is the number that lenders use to determine how viable you are to lend to. It is calculated by dividing your current loan balance by your home's appraised value, then multiplying it by 100 to convert into a percentage. A LTV of 80% or less is ideal for most homebuyers. Any more, and you will have to take out Private Mortgage Insurance (PMI), which could make your property purchase even more expensive.
Unfortunately, Stamp Duty can't be paid in instalments. It has to be paid in full on the day that payment is requested. If you miss the deadline, you will incur financial penalties.
No, you don't pay Stamp Duty when you sell a house. If you decided to sell your property but it has gained value since you came into ownership of it, you will have to pay a different tax called Capital Gains tax. You can read more about Capital Gains here.
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