A simples guide

Stamp duty explained

Stamp duty is a tax paid by the buyer on the purchase price of a property. Stamp duty is not payable in Scotland, which has a different system known as Land and Buildings Transaction Tax – more on this later.

Stamp duty is payable on the purchase price of your home, not on the amount you borrow via a mortgage.

How much is it, and what are the latest rates?

If the property you are buying will be your main home, then stamp duty is charged as follows:

On the first £125,000 of the purchase price - None

On the portion between £125,001 and £250,000 - 2%

On the portion between £250,001 and £925,000 - 5%

On the portion between £925,001 and £1,500,000 - 10%

On the portion above £1,500,000 - 12%

So for example if your home costs £120,000, you pay no stamp duty.

Stamp duty is a ‘graduated’ tax so if your home costs £240,000, then you pay nothing on the first £125,000, and 2% on £115,000 (as £115,000 of your purchase price falls into the 2% band), which equals £2,300 .

If your home costs £500,000 then you pay  nothing on the first £125,000, 2% on the value between £125,000 and £250,000, which is £2,500; plus 5% on £250,000 (the amount of the purchase price that falls into the 5% band), which is £12,500. Hence your total stamp duty bill is £15,000.

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

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

When does stamp duty apply?

You should expect to pay stamp duty on all property purchases, including purchases of leasehold property and purchases that do not involve a mortgage. So when buying a home, you need to consider whether you will be able to afford the stamp duty, on top of all the other costs you take into account.

If the property you are buying just falls into a higher stamp duty band, then you may want to try offering a lower price. For example, if the property is valued at £255,000, can you get it for £249,000 instead to avoid paying 5% duty on any of the amount?

There are only a few exemptions from 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 on your home to another person as a gift

Stamp duty on second homes

If you buy an additional property worth £40,000 or more, then you will pay an additional 3% of the purchase price in stamp duty. This additional charge applies whether you purchase a second home or a buy-to-let property. Hence 3% is payable on the first £125,000, 5% on the next £125,000, 8% on the portion 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 will also need to pay the additional charge if you buy your new residential property before you have sold the previous one, as for a short time at least, you will own two homes; although in these circumstances there may be ways of claiming the additional tax back via your self-assessment tax return.

The 3% surcharge still applies if any of the following apply:

  • 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

Adding stamp duty to the mortgage

If you think you might struggle to pay the stamp duty as a lump sum, you can ask for it to be added to the mortgage amount. However, your lender may not allow this, and if it does, you will need to pay interest on the additional amount. For example, if your mortgage is for £200,000 and your stamp duty is £2,300, then you need to repay £202,300 plus interest over the whole mortgage term.

Stamp duty returns

Submitting a stamp duty return is usually taken care of by your solicitor. However, whether you use a solicitor or not, it is your responsibility to ensure that the return is filed with HM Revenue & Customs within 30 days of the completion of the purchase. Failing to meet this deadline could mean you are hit with a fine, and that you are charged interest on the unpaid amount.

A stamp duty return must still be submitted even if no duty is payable, say because the property is worth less than £125,000.


Stamp duty for first time buyers

First time buyers are treated exactly the same as anyone else when it comes to paying stamp duty, i.e. they pay nothing on the first £125,000, 2% on the next £125,000, and so on.


Stamp duty in summary

Stamp duty is just one of the many charges that have to be paid when buying a home. There is no way around it, so you need to make sure you are totally clear about how much stamp duty you will need to pay, and that you are confident you can afford it.

So now you understand stamp duty, why not have a look at the mortgage offers currently on the market? You can start to do your sums and work out if you can afford that dream house you have your eye on. 

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