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Stamp duty explained

Stamp duty explained

You’ll need to pay Stamp Duty Land Tax (SDLT) when buying a property over a certain amount. We explain how stamp duty works, when it applies, how to pay it and the cuts in stamp duty because of coronavirus. 

Tobi Owens
From the Mortgages team
4
minute read
posted 22 JULY 2020

Please note: The information in this article was correct at the time of publication on 22 July 2020 but, because of the impact of COVID-19, things are changing rapidly. We aim to keep this page updated, but please check with GOV.UK to confirm any details.

What is stamp duty? 

Stamp duty is just one of the many charges that have to be paid when you buy a property in England or Northern Ireland. Stamp duty is a tax paid by the buyer on the purchase price of a property, not on the amount you borrow via a  mortgage. 
 
Stamp duty as it’s known isn’t payable in Scotland or Wales. Instead, Scotland has a system known as Land and Buildings Transaction Tax, and Wales has Land Transaction Tax

Stamp duty and coronavirus

In response to the COVID-19 pandemic, the Government is cutting stamp duty on homes bought from 8 July 2020 until 31 March 2021.

Stamp duty will now only need to be paid on the cost of a property above £500,000.

This applies both to first-time buyers and people who have bought a property before.

The stamp duty bands will work like this:

  • Nothing on the first £500,000
  • 5% on £500,001 to £925,000
  • 10% on £925,001 to £1.5 million
  • 12% over £1.5 million

Under normal circumstances, stamp duty is payable on properties over £125,000, except for first-time buyers who are exempt from stamp duty on home purchases up to £300,000. So normally, stamp duty bands work like this:

  • Nothing on the first £125,000
  • 2% between £125,001-£250,000
  • 5% between £250,001 and £925,000
  • 10% between £925,001 and £1.5 million
  • 12% above £1.5 million

When does stamp duty apply?

Ordinarily you should expect to pay stamp duty on all property purchases, including leasehold property and purchases that don’t involve a mortgage. So when buying a home, you need to consider whether you’ll be able to afford the stamp duty on top of all the other costs involved.

  • There are only a few exemptions to the need to pay stamp duty, and these include:
    • When a portion of a home is transferred to a spouse or partner following a separation or divorce
    • When you transfer the deeds of your home to another person as a gift
    • If you fall into the first-time buyer category and are buying a home for up to £300,000

How much do I pay in Scotland? 

Scotland’s Land and Buildings Transaction Tax has also been temporarily lowered, from 15 July 2020 to 31 March 2021. The bands now work like this:

  • Nothing up to £250,000
  • 5% between £250,001 to £325,000
  • 10% between £325,001 to £750,000
  • 12% over £750,000

Before 15 July 2020, rates were:

  • Nothing on the first £145,000
  • 2% between £145,001 and £250,000
  • 5% between £250,001 and £325,000
  • 10% between £325,001 and £750,000
  • 12% above £750,00

How much do I pay in Wales? 

Land Transaction Tax has the following bands for properties bought between 1 April 2018 and 26 July 2020:  

  • Nothing on the first £180,000 
  • 3.5% between £180,001 and £250,000 
  • 5% between £250,001 and £400,000 
  • 7.5% between £400,001 and £750,000 
  • 10% between £750,001 and £1.5 million 
  • 12% over £1.5 million 

After 26 July, the bands will be:

  • Nothing on the first £250,000 
  • 5% between £250,001 and £400,000 
  • 7.5% between £400,001 and £750,000 
  • 10% between £750,001 and £1.5 million 
  • 12% over 1.5 million 

Stamp duty on second homes

The stamp duty cut has also been extended to second homes and buy-to-let properties.

But buy-to-let investors and buyers of second homes will still have to pay a 3% stamp duty surcharge on top of the standard rate.

This works out as:

  • 3% up to £500,000
  • 8% from £500,001 to £925,000
  • 13% from £925,001 to £1.5 million
  • 15% over £1.5 million

You don’t have to pay the additional tax if your second home is a caravan, mobile home or houseboat.

However, you will need to pay the additional charge if you buy your new residential property before you’ve sold the previous one because, for a short time at least, you’ll own two homes (in these circumstances, there may be ways of claiming the additional tax back via your self-assessment tax return).

The 3% surcharge applies to any of the following:

  • Your main home is abroad and the second home you buy is in the UK.
  • The property is located in Scotland – the Scottish Government also adds 3% to its Land and Buildings Transaction Tax rates for second home purchases.
  • The second home is bought via a limited company.

Stamp duty returns

Your solicitor usually submits a stamp duty return for you. However, whether you use a solicitor or not, it’s your responsibility to ensure that the return is filed with HM Revenue & Customs within 30 days of the completion of the house purchase. If you don’t meet this deadline, you could be fined and charged interest on the unpaid amount.

A stamp duty return must still be submitted even if no stamp duty is payable. 

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