Stamp duty – or Land Tax to give it its full name – is payable when you buy a freehold, leasehold or shared ownership property in England and Northern Ireland above a certain price threshold. Your solicitor will usually take care of this for you and pay it to HM Revenue & Customs on your behalf.
What is stamp duty?
Stamp duty is a type of property transfer tax levied on the written documents that legally change ownership of land and buildings. In England, Wales and Northern Ireland this is called Stamp Duty Land Tax (SDLT).
Buyers pay SDLT whether they are buying the property outright or with a mortgage and rates increase as the value of the property rises guru website. It only applies to houses, flats, sites with agreement to build and certain other residential properties.
It is always the responsibility of the buyer to file a return with HM Revenue and Customs and pay any stamp duty that is due on completion. Your solicitor or conveyancer will usually arrange this on your behalf but if they don’t you’ll need to do it yourself.
It’s important to remember that stamp duty is just one of a number of government fees and charges you may have to pay on completion. These include things like mortgage registration and transfer fees as well as land registry costs. It’s a good idea to check the latest stamp duty rules and third party calculators before you buy so you can understand exactly what you’ll be paying for. In some cases, you might not have to pay stamp duty at all. From 8 July 2020 to 30 June 2021 the government temporarily cut stamp duty for first time buyers and increased the threshold for those purchasing additional properties.
Who pays stamp duty?
The stamp duty you pay depends on your property price, whether you are a first time buyer and how many other residential properties you own. There are different rates and thresholds for each region of England, Scotland and Wales. The rate you pay also depends on the type of property you buy. You can use the property calculator to see how much stamp duty you’ll have to pay.
If you are buying a leasehold property, you’ll have to pay an extra 1% on the purchase price above the standard rate. This is to help the government raise money for new homes. It’s worth checking the length of the lease as well as the underlying ground rent to make sure you don’t end up paying more than you should.
You must pay your stamp duty within 30 days of completion or risk a fine. Your solicitor or conveyancer will file a return with HMRC on your behalf. You can choose to add the stamp duty to your mortgage loan, but this will mean your debt will increase and may affect your mortgage affordability in the long run.
It is also worth noting that if you buy a new build home with a long lease and then transfer the deeds to yourself in the future, you will have to pay stamp duty at the full rate. This is because you will technically own two properties – the leasehold and the freehold – at the same time.
How much stamp duty do I pay?
The amount of stamp duty you pay depends on the price of your new home. It’s important to check that the price you pay falls within the nil rate threshold and that the purchase is classed as ‘residential’. Your solicitor will help you to calculate this and file your return.
First-time buyers can benefit from a reduced rate of stamp duty. This applies if they are buying their first home and the property’s value is below a certain level. This means that if you buy a house or flat for PS425,000 or less, you will not have to pay any stamp duty. This is a great way to get on the property ladder without having to save up for a deposit.
You can also qualify for stamp duty relief if you buy a shared ownership home. This is where you buy a stake in the property and then increase it over time (known as staircasing). As long as your share rises below 80%, you won’t have to pay any stamp duty.
However, you’ll have to pay stamp duty if you’re replacing your primary residence, buying an additional property or are a non-UK resident. There are also different rates and exemptions for those purchasing buy to let investments or second homes. Your solicitor can explain these in more detail.
When do I pay stamp duty?
Purchasing your first home comes with many costs, and it’s important to understand the full range of fees that you may be facing. One of these is Stamp Duty Land Tax (SDLT), which is payable when buying a property costing more than a set threshold.
SDLT is typically payable within 14 days of completion, which is the date on which all transfer documents are signed between buyers and sellers. In most cases, your conveyancing solicitor will file your return and pay the stamp duty to HM Revenue and Customs on your behalf as part of their overall fees. This will also include claiming any relief you are entitled to.
There have been a number of changes to SDLT rates over recent years, with different thresholds and rates for both first time buyers and those moving up the property ladder. In the 2022 Autumn Statement, Chancellor Jeremy Hunt announced that the nil rate threshold below which stamp duty isn’t paid will revert to PS125,000 from 1 April 2025.
This will mean that first-time buyers in London and other areas of the UK where house prices are much higher than the national average could face a stamp duty bill, although it will still be less than a home mover would pay. It is possible to borrow more on a mortgage to cover the cost of stamp duty, but this could push up your loan-to-value and increase your interest payments.