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Stamp duty explained

Stamp duty explained

When buying a home in England or Northern Ireland that costs more than £125,000, you’ll need to pay Stamp Duty Land Tax (SDLT). We explain how stamp duty works, when it applies and how to pay it.

Tobi Owens
From the Mortgages team
minute read
posted 6 JANUARY 2020

What is stamp duty?

Stamp duty is just one of the many charges that have to be paid when you buy a property. 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 isn’t payable in Scotland, which has a different system known as Land and Buildings Transaction Tax, and those living in Wales could see changes to their system.

When does stamp duty apply?

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

Laws relating to stamp duty for first-time buyers

New laws have been introduced that have seen stamp duty abolished in England and Northern Ireland for first-time buyers on home purchases of up to £300,000. In these countries, first-time buyers will pay 5% on properties that cost from £300,001 up to £500,000, and the standard rate on anything over £500,000.

For example: If your home costs £280,000, you pay no 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). Total stamp duty to pay: £1,250.

How much do I pay in Scotland?

Scotland’s Land and Buildings Transaction Tax has the following bands:

  • Nothing on the first £145,000
  • 2% between £145,001 and £250,000
  • 5% between £250,001 and £320,000
  • 10% between £320,001 and £750,000
  • 12% above £750,00

Stamp duty on second homes

If you buy an additional property worth £40,000 or more, then you’ll pay an extra 3% of the purchase price in stamp duty. This additional charge applies whether you purchase a second home or a buy-to-let property. This works out as: 3% payable on the first £125,000; 5% on the next £125,000; 8% between £250,001 and £925,000, and so on…

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

You’ll also 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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