Stamp duty explained

When it comes to home-buying costs, Stamp Duty Land Tax (SDLT) is usually the one that hurts the most, with bills often running into thousands of pounds.

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 may well be the next largest cost you encounter, so it is crucial to do your sums to determine whether you’ll be able to afford Stamp Duty on top of other costs such as surveys and conveyancing.

How much Stamp Duty will I pay?

Stamp Duty is tiered, meaning that you pay different rates on different portions of the property price.

You’ll also pay different rates depending on whether you’re a first-time buyer or purchasing a buy-to-let, second or holiday home.

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 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, 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%
  • Over £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 costs £500,000.

First-time buyers

If you’re a first-time buyer and the price of your 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, 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 on the Rest Less Community forum, a place where you can get tips and support from like-minded people.

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