Stamp duty explained

The government has announced a Stamp Duty holiday on properties worth up to £500,000 until 31st March 2021, which could save homebuyers thousands of pounds.

When it comes to home-buying costs, Stamp Duty Land Tax (SDLT) is usually the one that hurts the most.

The amount of Stamp Duty you’ll have to pay varies depending on your circumstances, and is based on the purchase price of the property you’re buying, not the amount you’re borrowing via a  mortgage.

After putting down your deposit, it’s often the next largest cost you encounter, so the new tax break could mean the difference between being able to afford to buy the place you want and having to stay put. Here’s what you need to know.

How much Stamp Duty will I pay?

There’s usually no Stamp Duty to pay on property purchases costing up to £125,000, or £300,000 if you’re a first time buyer, but this threshold has now temporarily been raised to £500,00 for everyone, saving buyers up to £15,000.

Stamp Duty rates during the holiday period are therefore as follows:

  • Up to £500,000: 0%
  • On the portion from £500,001 to £925,000: 5%
  • On the portion from £925,001 to £1.5m: 10%
  • Above £1.5m: 12%

If you’re buying a second home, or a property to rent out, you’ll have to pay a 3% surcharge on top of these rates, so during the Stamp Duty holiday period, you’ll pay Stamp Duty on the following rates:

  • Up to £500,000: 3%
  • On the portion from £500,001 to £925,000: 8%
  • On the portion from £925,001 to £1.5m: 13%
  • Above £1.5m: 15%

What if I'm not planning to move until after March next year?

If you’re thinking about moving next year once the tax break no longer applies, then you’ll pay the standard rates of Stamp Duty.

There are a few exemptions which mean that you may not have to pay Stamp Duty. For instance, if you are transferring a portion of the home to a spouse or partner following a separation or divorce, gifting the deeds to another party, or if you are a first-time buyer buying a property for up to £300,000, Stamp Duty won’t be payable.

If none of the above exemptions apply to you, after 31 March next year, when you buy a property in which to live (and if you have previously owned a property), you’ll be charged the following rates on each portion of the property price.

  • £0-£125,000: 0%
  • £125,001-£250,000: 2%
  • £250,001-£925,000: 5%
  • £925,001-£1.5m: 10%
  • Above £1.5m: 12%

For example, if you’re buying a property costing £300,000, your Stamp Duty bill would be £5,000, rising to £15,000 if the property you’re purchasing cost £500,000.

First-time buyers

Most first-time buyers already escape paying Stamp Duty, but the new tax break means that they won’t have to pay any Stamp Duty if they’re purchasing a property costing up to £500,000.

If you’re not planning to buy before the end of March next year, normal Stamp Duty rates will apply. These mean that if the price of the property you’re buying is £300,000 or less, you won’t have to pay any Stamp Duty. If the property costs more than £300,000 but less than £500,000, you will be charged 5% on the portion above £300,000.

For example: If your home costs £270,000, you won’t be charged Stamp Duty. If your home costs £325,000, then you pay nothing on the first £300,000, and 5% on the remaining £25,000 (as £25,000 of your purchase price falls into the 5% band) leaving you with a Stamp Duty bill of £1,250.

If the property price is over £500,000, you’ll follow the rules for people who’ve bought a home before and the first £300,000 of your property won’t be exempt from Stamp Duty. That means, for example, that if the property you’re buying costs £600,000, you’d pay £20,000 in Stamp Duty.

Second homes

If you buy an additional property after the Stamp Duty holiday ends, whether as a second home or as a buy-to-let investment, which is worth £40,000 or more, then you’ll be charged 3% extra on top of the normal Stamp Duty rates. 

This means Stamp Duty charges are tiered as follows:

  • Up to £125,000: 3%
  • The next £125,000 (the portion from £125,001 to £250,000): 5%
  • The next £675,000 (the portion from £250,001 to £925,000): 8%
  • The next £575,000 (the portion from £925,001 to £1.5 million): 13%
  • The remaining amount (the portion above £1.5 million): 15%

The additional tax is not payable if your second home is a caravan, mobile home or houseboat.

It’s worth noting  that you will also need to pay the additional charge if you buy your new home before you’ve sold the previous one because, for a short time at least, you’ll own two homes. You may be able to claim the additional tax back via your self-assessment tax return.

When do you have to pay Stamp Duty?

Homebuyers in England and Northern Ireland have 14 days from the ‘effective date’ of the transaction, which is typically the date of completion, to pay their Stamp Duty bill.

If you miss the deadline, you may be charged penalties and interest until the bill is settled. In most cases, your solicitor or conveyancer takes care of the Stamp Duty return, and will forward the Stamp Duty money you’ve paid to HMRC. If you’re buying a property without a mortgage, you can pay HMRC the Stamp Duty direct.

Even if first-time buyer Stamp Duty relief means you don’t have to pay Stamp Duty, you’ll still need to complete a Stamp Duty return in order to claim the relief.

You don’t have to file a Stamp Duty return if:

  • A property is being transferred and no money is changing hands
  • A property is left to you in a will
  • A property is transferred because of divorce or dissolution of a civil partnership
  • you’re buying a freehold property for less than £40,000

Find out more about transactions that do not need a return.

Get help with the sums

Working out how much Stamp Duty you’ll have to pay isn’t always easy, but the Gov.uk website has a handy Stamp Duty calculator to help you work out how much tax you’ll need to pay.

If you’d like to share your experiences of paying Stamp Duty, we’d love to hear from you. You can get in touch via [email protected] or post a comment below.

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11 thoughts on “Stamp duty explained

  1. Avatar
    Anonymous on Reply

    I think you are only referring to England. If this is the case, then there is no point in me receiving these emails from you. This will only confuse information being issued.

    Please cancel my subscription to your news letter

    1. Avatar
      Helen on Reply

      Hi there. Thank you for your question. The main article was England and Northern Ireland only, but you’ll now see that I’ve added a link and some comments on rules for Scotland and you can find details for the Welsh rules here, which will change for transactions from 27 July.

      If you would like to unsubscribe, please email me on [email protected] requesting that, as I don’t have any details from your post.

      Thanks Helen at Team Rest Less

    1. Avatar
      Helen on Reply

      Hi Tracy. Sorry for my delay in responding. The same rules in Northern Ireland as for England, so these are the current thresholds. Mel, our Financial Writer will be updating the Stamp Duty article explaining rules for the different areas now they’ve all been confirmed.

    1. Avatar
      Helen on Reply

      Hi Jenny. Thank you for your question. As you are no doubt aware, Scotland has different Stamp Duty thresholds to England, but has raised the starting point at which Stamp Duty becomes payable from £145,000 to £250,000 following the changes to Stamp Duty rules in England. The changes in Scotland came into effect yesterday (15th July 2020) and will apply until the end of March 2021. Current thresholds in Scotland are shown here. I hope that has helped. Helen from Team Rest Less

    1. Avatar
      Helen on Reply

      Hi Claire. According to the .GOV website, it applies to properties purchased between 8th July 2020 and 31st March 2021. There is a page outlining the changes, which you can find here.

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