A quick guide to stamp duty

by Rizwan Osman on 3rd August 2020

If you’re buying a house, you need to factor the cost of stamp duty into your budget. There have been many changes to the tax, including a temporary stamp duty exemption, so it is important to understand how it works. Read on for our quick guide to stamp duty.

stamp-duty-land-tax

What is stamp duty?

Stamp duty land tax (to give it it’s full title – or SDLT) is a one-off tax that must be paid when you buy a property or land that costs more than a set threshold in England and Northern Ireland.

In the summer statement on 8th July, chancellor, Rishi Sunak, introduced a temporary stamp duty exemption on transactions of up to £500,000. This stamp duty holiday will last until 31st March 2021.

Previously, the threshold at which homebuyers started paying stamp duty was set at £125,000.

In April 2016, the government imposed an extra 3% stamp duty surcharge on second property purchases. Outside the stamp duty holiday period, different rules apply for first-time buyers purchasing a property costing £500,000 or less.

How much will I pay?

The rate at which you pay stamp duty depends upon the purchase price. It is a progressive tax, meaning you pay a higher percentage of stamp duty as the property price rises – but you only pay the higher rate for the portion of the price at that rate.

The table below shows the new stamp duty rates for main residences:

Property Value SDLT Rates
Up to £500,000 0%
£500,001 – £925,000 5%
£925,001 – £1,500,000 10%
From £1,500,001 12%

This means if you buy a house or flat with a purchase price of £650,000 before 31st March 2020 as your main residence you would pay the following in Stamp Duty:

  • 0% on the first £500,000 (£0)
  • 5% on remaining £150,000 (£7,500)
  • Total SDLT = £7,500

You can use the HMRC’s Stamp Duty Calculator to work out how much stamp duty you’ll have to pay on your property purchase.

From 31st March 2021 the old rates will apply:

Property Value SDLT Rates
Up to £125,000 0%
£125,000 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1,500,000 10%
From £1,500,001 12%

First-time buyers and stamp duty

Outside the stamp duty exception period, first-time buyers in England and Northern Ireland benefit from tax relief on stamp duty.

First time buyers purchasing a property worth up to £500,000 pay 0% SDLT on the first £300,000 and pay 5% on the portion between £300,001 and £500,000. First time buyers purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT at the normal rates.

First-time buyer tax relief on stamp duty has been superseded by the stamp duty holiday which makes all properties costing £500,000 of less exempt from stamp duty.

From 1st April 2021 the government will revert to the old rates.

What is a first-time buyer?

You will not be considered a first-time buyer if you have owned or inherited a property before or if you have been named on the deeds of another property. Nor will you be eligible if you are married and your spouse has owned a property in the past, even if you have never owned a property in your own right.

However, if you are not married but living with a partner who has owned a property and you have not, you will be considered a first-time buyer.

If you are purchasing a buy-to-let property, you won’t be considered a first-time buyer either, even if you haven’t owned property before – although you are allowed to rent out a room in your home.

Higher rates for additional properties

You will usually pay 3% on top of the normal stamp duty rates if buying a residential property means you will own more than one home.

You will not pay the extra 3% if the property you’re buying is replacing your main residence and that has already been sold.

If there’s a delay selling your main home, and it has not been sold on the day you complete on your new property, you will have to pay the higher rate. However, you may be able to get a refund if you sell your previous main home within 36 months.

Find out more about additional property rates on the government website.

How to pay stamp duty

You have 14 days from completion date to file your stamp duty return and pay (previously the time limit was 30 days). If you don’t pay in time you could be fined.

In most cases, the solicitor carrying out your conveyancing will pay the tax on your behalf at completion and add the amount to their fees. They’ll also claim any relief you’re eligible for, such as if you’re a first-time buyer. However, it is your responsibility to ensure that the stamp duty is paid.

 

If you are looking to buy property in south west London, contact us. We can advise you about stamp duty as well as other aspects of your house purchase and show you our current selection of properties.