Stamp duty explained

The Stamp Duty holiday on properties worth up to £500,000 ended on 30 June 2021, but the good news is there is no Stamp Duty to pay on purchases up to £250,000 until the end of September.

The Stamp Duty holiday was originally due to finish on 31 March this year, prompting fears that many people would miss out due to delays in conveyancing, mortgage offers and valuations as a result of coronavirus.

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

After putting down your deposit, it’s often the next largest cost you encounter, so the current 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.

What is Stamp Duty?

Stamp Duty is a tax you need to pay when you buy a property over a certain price. Currently, you’ll pay Stamp Duty on residential properties bought for £250,000 and over and £150,000 for non-residential land and properties. However, these thresholds are set to change on 1 October 2021, when Stamp Duty will be payable on residential properties bought for £125,00 and over, and £150,000 for non-residential land and properties.

Stamp Duty first originated in 1694 when William III raised the tax against paper goods to help pay for the war against France, and it proved so successful that it stuck. Since then, the tax has changed considerably and is now applied to all property purchases, with the amount of Stamp Duty you have to pay depending on your circumstances, and the purchase price of the property.

How much is Stamp Duty?

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 the Stamp Duty threshold is now £250,000, saving buyers £2,500 if purchasing a property costing £500,000.

Stamp Duty rates until the end of September are therefore as follows:
  • Up to £250,000: 0%
  • On the portion from £250,001 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 in England or Northern Ireland, you’ll have to pay a 3% surcharge on top of these rates, so until 30 September, you’ll pay Stamp Duty on the following rates:

  • Up to £250,000: 3%
  • On the portion from £250,001 to £925,000: 8%
  • On the portion from £925,001 to £1.5m: 13%
  • Above £1.5m: 15%
These Stamp Duty thresholds only apply if you’re purchasing a property in England or Northern Ireland. If you’re buying in Scotland or Wales, then Stamp Duty holidays have now finished there, so normal rates apply.

In Wales, these rates are as follows:
  • Up to £180,000: 0%
  • On the portion from £180,001 to £250,000: 3.5%
  • On the portion from £250,001 to £400,000: 5%
  • On the portion from £401,000 to £750,000: 7.5%
  • On the portion from £750,001 to £1.5m: 10%
  • Above £1.5m: 12%

There’s a 4% surcharge on top of these rates if you’re buying a second home or property to rent out in Wales.

The Stamp Duty holiday has also finished in Scotland, so if you’re buying a property there, rates are as follows:

  • Up to £145,000 (£175,000 for first-time buyers): 0%
  • On the portion from £145,001 to £250,000: 2%
  • On the portion from £250,001 to £325,000: 5%
  • On the portion from £325,001 to £750,000: 10%
  • Above £750,001: 12%

There’s an additional 4% surcharge to pay on top of these rates if you’re buying a second home or property to rent out in Scotland.

What if I'm not planning to move until after September?

If you’re thinking about moving in England or Northern Ireland after 30 September once the tax break no longer applies, then you’ll pay the standard rates of Stamp Duty, which are as follows:

  • £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 buyer Stamp Duty rates

Now that the end of June deadline has passed, normal Stamp Duty rates will apply for first-time buyers. 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.

Stamp Duty on 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.

How to pay Stamp Duty

Usually, the solicitor or conveyancer you use when buying a property will calculate and arrange the payment of any Stamp Duty due on your behalf on the day of completion and add the amount to their fees. If you are eligible for Stamp Duty relief (for example, if you’re a first-time buyer) your solicitor will claim this for you. Stamp Duty must be paid within 14 days after completion.

If you aren’t using a third party to purchase your property or land, you will usually need to file a return and pay the tax yourself. There are some exceptions where you will not need to send a return, which you can read about at gov.uk.

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.

Has the Stamp Duty holiday made you more likely to buy a property? We’d be interested in hearing from you. You can join the conversation on the Rest Less community or leave a comment below.

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