What is Stamp Duty and will you have to pay it?

Couple with realtor signing mortgage contract

Stamp duty can seem confusing, but it’s a part of most property transactions so it’s worth understanding!

After reading this guide you’ll understand what stamp duty is, whether you’ll have to pay and, if so, how much.

What is stamp duty?

The term is wrapped in history, harking back to the times where vellum contracts were physically stamped to prove their legitimacy.

Now a physical stamp is no longer required, and the stamp duty associated with properties isn’t technically a stamp duty in the historical sense. But we’ll save the legal history lesson for elsewhere.

The stamp duty you may have to pay is the short name for Stamp Duty Land Tax, which was introduced in UK law in 2003. It is a transfer tax, paid to HMRC when ownership of property is passed to someone else.

 

Will you have to pay stamp duty?

Everyone has to pay stamp duty on residential property or land valued over £125,000, or £40,000 if it is their second home.

First-time buyers are exempt from buying stamp duty on properties up to £300,000, paying reduced rates on anything above that amount.

The government definition of a first-time buyer is “(an) individual(s) who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence”.

If you are exempt from stamp duty you are still required by law to submit a return, even though you will not be required to pay.

Stamp duty must be paid on freehold and leasehold properties whether buying outright or using a mortgage.

 

When is stamp duty paid?

Your solicitor or conveyancer will usually be responsible for organising payment. Money must be transferred within 30 days of buying a property. Penalty charges are payable if late payment is made.

 

How much is stamp duty?

Stamp duty is calculated in bands, as outlined below. All of the property value within each band is calculated at that rate.

Add 3% to values in all bands for buy-to-let properties and second homes.

 

Property value

Stamp duty, %age of property value

£0 - £125,000

0%

£125,001 - £250,000

2%

£250,001 - £925,000

5%

£925,001 - £1,500,000

10%

£1,500,001 +

12%

 

For first time buyers the rates are slightly different:

Property value

Stamp duty, %age of property value

£0 - £300,000

0%

£300,001 - £500,000

3%

£500,001 - £925,000

5%

£925,001 - £1,500,000

10%

£1,500,001 +

12%

 

Stamp duty examples

Percentage tables can be a bit confusing, so we’ve put together a few examples:

 

First-time buyer, house value £250,000

 

Stamp duty = £0

  • 0% of home value in £0 - £300,000 bracket, which includes the whole value

 

Non first-time buyer, house value £250,000

 

Stamp duty = £2500

  • 0% of home value in £0 - £125,000 bracket
  • 2% of the £125,000 value in the £125,001 - £250,000 bracket = £2500

 

Non first-time buyer, house value £2m

 

Stamp duty = £153,750

  • 0% of home value in £0 - £125,000 bracket
  • 2% of the £125,000 value in the £125,001 - £250,000 bracket = £2500
  • 5% of the £675,000 value in the £250,001 - £925,000 bracket = £33,750
  • 10% of the £575,000 value in the £925,001 - £1,500,000 bracket = £57,500
  • 12% of the £500,000 value in the £1,500,000 + bracket = £60,000

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