Stamp Duty: The Essentials
If you are looking to buy a property or are already in the process of buying, it is vital that you understand what stamp duty is and how much it will set you back before making your final decision to buy. This guide will equip you with all the information you need to work out which stamp duty rates are relevant to you and your situation.
Revised stamp duty rates until 31 March 2021
In the wake of COVID-19, the UK government has made changes to stamp duty thresholds across the UK until 31 March 2021. In England and Northern Ireland, you will pay no stamp duty on the purchase of a main property under the price of £500,000. If you’re purchasing additional properties you will still have to pay an extra 3% in Stamp Duty on top of the revised rates for each band. Changes also apply to the Land and Buildings Transaction Tax (LBTT) system in Scotland and to the Land Transaction Tax (LTT) system in Wales.
See the ‘How much Stamp Duty will you pay?’ section below for details of the current rates.
What is Stamp Duty?
Stamp duty got its name in the 17th century when all legal documentation was taxed and stamped to show that all fees had been paid. Today, it is payable in England and Northern Ireland on property or land transactions over a certain value.
It is usually payable on a property over the value of ￡125,000 for a first home and on a property over the value of ￡40,000 for second homes. However, temporary changes made in July 2020, mean that it is now only payable on first home properties over the value of ￡500,000 until 31 March 2021.
In Scotland and Wales, instead of stamp duty, you will pay a Land and Buildings Transaction Tax (LBTT) in Scotland and a Land Transaction Tax (LTT) in Wales.
Who pays Stamp Duty?
Stamp duty (or LBTT) applies to almost everyone. It is due on leasehold, freehold and shared ownership properties (you can learn more about property tenure here) and it is also a consideration whether you are buying a property with or without a mortgage. It is paid by first time buyers as well as those already in the housing market.
The most common exception is that if you inherit a home, you will instead pay inheritance tax. There are also a few other exemptions including a divorce or separation where 1 party transfers their share of the property to the other and when the property is a gift.
For further information about exemptions you can visit GOV.UK.
Changes to the Stamp Duty System
The stamp duty system was reformed in December 2014. Instead of paying a single rate on the whole property price (known as a slab tax), property buyers now pay the rate for the portion of the property that is in each band. As a result, the tax has dropped for the average property in the UK which is great news for many aspiring buyers.
Another major change was implemented in 2016, which saw the introduction of a surcharge on top of the new stamp duty rates for the purchase of second properties. This was implemented by the government to try to slow down house price growth and give first-time buyers a chance to get into the property market. How much extra you will need to pay for the purchase of a second property is detailed further in the next sections.
In April 2018, Stamp Duty was devolved to Wales and replaced with Land Transaction Tax (LTT).
How much Stamp Duty will you pay?
Working out stamp duty can be quite complicated so use our stamp duty calculator to work out how much you will be liable to pay or see the easy to follow tables below if you want to try to work it out for yourself.
England and Northern Ireland
If you’re purchasing a second home or a buy-to-let property, you’ll pay an extra 3% on each band.
Land and Buildings Transaction Tax (LBTT)
If you’re purchasing a second home or a buy-to-let property, you’ll pay an extra 4% on each band.
|LTV percentage (%)
|Lowest rates available, more relaxed lending criteria can be applied
|Often still the lowest rates available and more relaxed lending criteria can be applied
|Very good rates available and relaxed lending criteria can be applied
|Good rates available. This tends to be the last tier where lending criteria can be more flexible
|Fairly good rates available. Standard lending criteria often applied
|Average rates available. Standard lending criteria often applied
|Higher rates available. Strictest lending criteria applied
|Higher rates available. Strictest lending criteria applied
Land Transaction Tax (LTT)
These revised rates only apply to people purchasing a main property.[table “” not found /]
Additional Stamp Duty Rates for a Second Property
If you’re buying a second property for over £40,000, you’ll usually have to pay 3% in addition to the normal stamp duty rates (4% in Scotland). Whether you’re buying a second property as a holiday home, purchasing it for a child or as a buy to let, the 3% surcharge will apply. It even applies if your main home owned is overseas.
It will not apply however, if you already have a buy to let property and are selling your main residence to buy a new main residence to live in. It also excludes caravans, mobile homes and houseboats. You can learn more about buying to let in our comprehensive buy to let guide.
When and How do you pay Stamp Duty?
You’ll need to pay and submit a Stamp Duty Land Tax return and pay within 14 days of completing the purchase of your property. It is legally the buyer’s responsibility to pay it correctly and on time but usually, your solicitor will help or manage the process for you.
You can find out more about how your solicitor will help you throughout the transaction in Propillo’s guide to conveyancing. Failing to meet the deadline could incur a fine or an interest charge. Go to the GOV.UK website for an application form and for further information about the submission process should you need to investigate this further without your solicitor’s help.
You will still be required to submit a return even for properties less than the threshold amount, even though you won’t be liable to pay any stamp duty.
Buying a property is a big purchase and it is vital that you factor in the cost of stamp duty at the start of your decision making process. Budgeting is paramount so be sure you calculate the cost accurately using the correct stamp duty rates for your buying situation and your location (don’t forget to use our calculator!) Before you put an offer in on a property, ensure you are able to finance the stamp duty and have an understanding of the other property and mortgage fees that will be due.
We are often asked if stamp duty can be added to the mortgage. Technically this is not possible, however, depending on your personal circumstances you may be able to request a larger mortgage to compensate for any buying costs you may have.
You need to be aware of the additional interest cost that will be accrued and also how it will affect your loan to value ratio as in some cases, borrowing that little extra could be very expensive overall. Discuss options with our mortgage advisers before making any decisions.