Stamp duty

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.

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.

Mark Gordon
From the Mortgages team
4
minute read
Do you know someone who could benefit from this article?
Posted 1 JULY 2021

What is stamp duty? 

Stamp duty is a tax that you need to pay when you buy a property in England or Northern Ireland. In Scotland, it’s known as Land and Buildings Transaction Tax, and in Wales it’s called Land Transaction Tax. The amount of stamp duty you pay is calculated using the purchase price of a property, not the amount you’re borrowing through a mortgage

What is a stamp duty threshold?

Stamp duty thresholds are simply the limits to when and which charges apply. If you buy a property for less than the base threshold, you won’t pay any stamp duty, whereas if the property you’re buying exceeds other thresholds, you’ll need to pay more.

What is the stamp duty holiday?

In response to the COVID-19 pandemic, the Government introduced a stamp duty holiday for England and Northern Ireland, cutting stamp duty on homes bought from 8 July 2020 until the end of June 2021.

Stamp duty only needed to be paid on the cost of a property above £500,000 in England and Northern Ireland.

From 1 July to 30 September, the cut in stamp duty is being phased out, and the tax needs to be paid on the cost of properties over £250,000.

The stamp duty bands work like this:

  • Nothing on the first £250,000
  • 5% on £250,001 to £925,000
  • 10% on £925,001 to £1.5 million
  • 12% over £1.5 million

Under normal circumstances, and from 1 October 2021, 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 in England and Northern Ireland. 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
See more on the stamp duty holiday

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’s 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.

When do you have to pay stamp duty?

Once you’ve bought your new home, you’ll need to file a stamp duty land tax return and pay the amount due within 14 days in England and Northern Ireland. If you don’t do this within 14 days, you’ll probably be charged penalty fees by HMRC.

How to pay stamp duty

Most of the time, your solicitor will sort this out for you. However, if you’d rather do it yourself, you’ll need to fill out and submit a stamp duty land tax return form. Make sure you do it within the set time to avoid penalty fees.

How can I calculate stamp duty?

The cut in stamp duty is currently being phased out. We show how stamp duty is calculated between 1 July and 30 October, and how it will be after the stamp duty holiday.

 

Stamp duty from 1 July to 30 September 2021

Stamp duty rates from 1 October 2021

Property price

Stamp duty rate

Property price

Stamp duty rate

up to £250,000

Zero

up to £125,000

Zero

portion from £250,001 to £925,000

5%

portion from £125,001 to £250,000

2%

portion from £925,0001 to £1.5 million

10%

portion from £250,0001 to £925,000

5%

remaining amount above £1.5 million

12%

portion from £925,001 to £1.5 million

10%

   

remaining amount above £1.5 million

12%

How much stamp duty does a first time buyer pay?

From 1 July, first-time buyers of properties costing £500,000 or less won’t have to pay stamp duty on the portion up to £300,000. The rate is then 5% on the portion from £300,001 to £500,000.

If the property costs more than £500,000, first-time buyers follow the same rules as people who have bought a property before.

Stamp duty on second homes

The stamp duty cut was also extended to second homes and buy-to-let properties until 30 June.

From 1 July until 30 September, stamp duty will start at 3% on the cost of a second home or buy-to-let property up to £250,000. From 1 October, it will go back to pre-holiday rates.

You don’t have to pay the additional tax 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 back the additional tax 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 second home is bought via a limited company.

Refund for higher rates of stamp duty

If you bought a new home but were unable to sell your old home temporarily, you’ll be forced to pay a higher rate of stamp duty as you’ll own two properties.

However, if you can sell (or even give away) your old home within three years of the purchase of your new one, you’ll be able to apply for a refund on the amount charged at the higher rate. That gives you some time to get things sorted, but you’ll still need to pay the higher rate to begin with. To be eligible for the refund, you must also claim for the refund within three months of selling your old home or within one year of filing your stamp duty tax return, whichever of those is later.

When do you not have to pay stamp duty?

The most common example of not needing to pay stamp duty is when the property is bought for a price that’s lower than the stamp duty threshold. Other examples include you having the deeds transferred to you in a divorce or if you were inheriting the property through someone’s will.

If you’re looking for a way to reduce the cost of stamp duty, there really isn’t one. Although, if you’re buying a home and notice the price is slightly above a threshold for stamp duty, try negotiating the price to bring it under that threshold. Even if it’s by a penny.

Can I add stamp duty to my mortgage?

Yes, you can add your stamp duty payment to your mortgage, but you should be aware that it will incur interest charges. If your mortgage is over a 30-year term, this will add up, so it’s always cheaper to pay it straight away if you can. But it’s a common option if you’re unable to pay up front, alongside all the other fees you’re being asked to pay.

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

Compare mortgages

Why not start by comparing mortgage deals to help you work out if you can afford your dream house?

When considering mortgage affordability, it’s important to know that your home or property may be repossessed if you do not keep up with your mortgage repayments. Therefore, you need to ensure that you’re comfortable with the monthly repayments for your agreed term.

Looking for a mortgage?

Compare mortgages in minutes to see if you can save

Compare now
Compare mortgages in minutes to see if you can save Start comparing