Stamp Duty is a big part of buying a home. In this guide, we’ll explain Stamp Duty and help you understand how it works.
You have to digest a lot of information when you buy a property and Stamp Duty is one of the single biggest costs you’ll face. The amount will vary depending on your circumstances, but we’ll show you how to figure that out.
What Is Stamp Duty Tax?
Stamp Duty is a UK property tax you pay when you purchase a property or a piece of land. Otherwise known as Stamp Duty Land Tax (SDLT), it applies to people buying properties over a certain price in England and Northern Ireland - Scotland and Wales have slightly different schemes but the principles remain the same. The amount you pay depends on the purpose and value of the property you want to purchase, as well as the type of buyer you are, e.g. first-time buyer, previous homeowner, landlord, etc.
There are a few misconceptions surrounding Stamp Duty, but that’s just because not everyone knows that much about it - especially those who haven’t really dealt with the property market before, or for many years.
It’s important to dispel these misconceptions from the offset. So, if you’re new to this, remember:
- The buyer of a property, not the seller, pays Stamp Duty. You never pay Stamp Duty when you sell. You may, however, have to pay Capital Gains Tax
- You can't deduct Stamp Duty from Income Tax, even on buy-to-let properties. However, you can deduct it from your taxable gains to reduce the Capital Gains Tax you pay when you sell a property
- You don’t pay VAT on Stamp Duty - it’s charged at its own rates
- Stamp Duty exemption areas don’t exist. Whether you qualify for an exemption depends on your situation and your property value.
When and How Do You Pay?
You pay Stamp Duty Land Tax when you purchase land or property. HMRC need to receive payment of Stamp Duty within 30 days of completion. To pay, you simply fill out an SDLT return and send it to HMRC. Your solicitor normally handles this for you at the same time they manage the transaction and submits the money to HMRC after completion.
Why Do You Pay Stamp Duty?
Buying a property is expensive enough, so it’s disheartening when additional costs like Stamp Duty start to pile on. Learning what Stamp Duty is for won’t reduce the cost, but at least you’ll understand why you have to pay it.
The original reason we used to pay Stamp Duty was to cover the cost of the legal documents required when you purchase a property. The name comes from the physical ‘stamp’ of approval that the government used to impress upon your paperwork. Most documents are digital now and don’t require an actual stamp, but you still pay Stamp Duty.
Nowadays, Stamp Duty is normally more than is needed to cover the costs of the documents – the government mainly use SDLT as a means of gathering revenue, rather than simply processing paperwork.
An example of a document you need is a Certificate of Land Ownership, which officially transfers the ownership from the previous occupier to you. HMRC will only issue this to you upon the receipt of Stamp Duty.
Who Pays Stamp Duty?
Almost everyone who purchases a property above a certain value pays Stamp Duty. There are certain exceptions, but whether you qualify depends on what kind of buyer you are.
You pay Stamp Duty if:
- You purchase a residential property or piece of land worth over £125,000
- You purchase a new main residence to replace your previous one - this doesn’t include remortgaging
- You previously owned a property, but sold it and now rent or live with friends or family, and are buying another property
- You marry and then buy a property with your partner – even if one of you is a first-time buyer
- You’re a first-time buyer and you purchase a property valued over £500,000
- You’re not a first-time buyer and you buy a shared ownership property
- You purchase a non-residential property above £150,000
- You buy mixed-use land or property above £150,000
- You are being added to a mortgage/title deeds – this is considered as ‘buying’ a share of property or land
You pay a Stamp Duty surcharge if:
- You purchase a second residence
- You’re a private landlord and you purchase a buy-to-let
- You purchase a buy-to-let through a limited company
Exemptions and Relief
You’re exempt from Stamp Duty if:
- You’re a first-time buyer and you purchase a property for £300,000 or less
- You receive land or property ownership in exchange for any payment or other consideration as stipulated by HMRC, e.g. through divorce
- A property is left to you in a will. Instead of paying Stamp Duty on inherited property, you pay inheritance tax
- You purchase a freehold property for less than £40,000
- You buy a new or assigned lease of at least 7 years, with a premium less than £40,000 and annual rent below £1,000
- You buy a new or assigned lease of less than 7 years, where the amount is below the residential or non-residential SDLT threshold
There are Stamp Duty relief options for:
- First-time buyers purchasing properties worth up to £500,000
- People purchasing multiple dwellings where a transaction, or several linked transactions, include freehold or leasehold interests in more than one dwelling
- Situations where a building company buys an individual’s home and the individual buys a home from the building company
- Employers that purchase an employee’s home because they’re moving with their work
- Compulsory purchases, e.g. a council purchases a property to sell it on to a property developer
- Instances where a property developer is subject to planning obligations
- There is a transfer of property between companies
- Charities that purchase land and property for charitable purposes
- Right to buy properties where a residence is sold at a discount by a public-sector body or there’s a preserved right to buy - the Stamp Duty on right to buy properties is worked out on the discounted price the buyer pays
- Certain situations in which registered social landlords buy land or property
Stamp Duty Rates Explained
The amount of Stamp Duty you’ll pay depends on the value and purpose of the property you want to buy.
If you’re buying a main residence and you’re not a first-time buyer:
You’ll pay Stamp Duty at the standard rates. This includes people who previously owned a main residence, but don’t anymore, and people replacing their current residence with a new one.
|Property Value||SDLT Rate 2019 - 2020|
|Up to £125,000||0%|
|£125,001 - £250,000||2%|
|£250,001 - £925,000||5%|
|£925,001 - £1,500,000||10%|
You’re purchasing a new home for £700,000. The maximum rate of Stamp Duty you’ll pay is 5%, but you don’t pay 5% on the total value of £700,000. You pay different portions of the whole value at their corresponding rates:
- 0% on the first £125,000 of the £700,000 = £0
- 2% on the next £125,000 of the £700,000 (the portion from £125,001 – £250,000) = £2,500
- 5% on the final £450,000 of the £700,000 (the remaining portion from £250,001) = £22,500
- Total SDLT = £25,000
If you’re buying a second residence or a buy-to-let:
You’ll pay a 3% Stamp Duty surcharge on top of the standard Stamp Duty rate. You can find more information in our guide: Stamp Duty on Second Homes.
If you’re a first-time buyer purchasing a main residence:
You can claim full Stamp Duty relief on properties up to £300,000 and some relief on properties valued between £300,000 and £500,000. If you purchase a property valued above £500,000 you won’t be eligible for the discount.
|Property Value||SDLT Rate for First-Time Buyers 2019-2020|
|Up to £300,000||0%|
|£300,001 - £500,000||5%|
You’re buying your first home for £500,000. The maximum rate of Stamp Duty you’ll pay is 5%; it’s also the only Stamp Duty you’ll pay.
- 0% on the first £300,000 of the £500,000 = £0
- 5% on the remaining £200,000 of the £500,000 = £10,000
- Total SDLT = £10,000
This is the maximum Stamp Duty reduction you can claim as a first-time buyer. Remember: it’s only available on properties valued up to £500,000.
If you’re a buying a non-residential property or mixed-use land:
You pay Stamp Duty on any property above £150,000.
|Property Value||SDLT Rate for Non-Residential and Mixed-Use Land 2019-2020|
|Up to £150,000||0%|
|£150,001 - £250,000||2%|
Non-residential property includes:
- Commercial property, e.g. shops, offices, etc.
- Agricultural land
- Any land or property that isn’t a residence
- 6 or more residential property bought as part of a single transaction
A mixed-use property is one with both residential and non-residential elements, e.g. a flat above a restaurant.
You’re buying commercial property for £300,000. The maximum rate of Stamp Duty you’ll pay is 5% but this is only for the portion of your property value over £250,000, i.e. £50,000. You pay some Stamp Duty at 2% and some at 5%.
- 0% on the first £150,000 of the £300,000 = £0
- 2% on the next £100,000 of the £300,000 (the portion from £150,001 - £250,000) = £2,000
- 5% on the final £50,000 of the £300,000 (the portion from £250,001) = £2,500
- Total SDLT = £4,500
Can You Add Stamp Duty to Your Mortgage?
Many people struggle to scrape together their deposit, let alone Stamp Duty. What are your options in this situation? One option is to add Stamp Duty to your mortgage.
It’s sometimes possible to borrow the amount you need to cover Stamp Duty when you take out your loan. You simply add the Stamp Duty amount onto the mortgage value you want to borrow.
You need to carefully consider whether adding Stamp Duty to your mortgage is the best choice for your situation. There are consequences you need to think about before making your decision.
The main consequences of adding Stamp Duty to your mortgage are:
- You’ll have to pay interest on the amount you borrow for the entire length of your mortgage
- Borrowing more money could affect your loan-to-value ratio (LTV) and stop you from obtaining the most competitive deals.
You can discuss adding Stamp Duty to your mortgage with your adviser. We’ll explain how it could affect your deal and your monthly payments.
Do You Pay Stamp Duty on Shared Ownership Properties?
You still pay Stamp Duty on shared ownership properties even though you only buy a portion. In fact, you pay Stamp Duty on the total value of the home, unless you’re a first-time buyer.
You’re buying a 50% share in a property with a market value of £160,000 for £80,000. You have to pay Stamp Duty on the full £160,000, not your £80,000 share.
- 0% on the first £125,000 of the £160,000 = £0
- 2% on the remaining £35,000 of the £160,000 = £700
- Total SDLT = £700
Stamp Duty for First-Time Buyers of Shared Ownership Properties
Are you a first-time buyer? If so, you may benefit from the legislation introduced in the 2018 Autumn Budget. The chancellor announced that first-time buyers who purchase shared ownership properties valued at up to £500,000 are exempt from Stamp Duty.
This new legislation aims to rectify issues that arose from introduction of Stamp Duty relief for first-time buyers in the 2017 Autumn Budget.
In 2017, the chancellor declared that first-time buyers would receive a Stamp Duty exemption of up to £300,000 on any residential purchase with a total maximum value of £500,000 and would pay 5% on the remainder above £300,000. This included shared ownership properties.
However, there was already existing legislation which stipulates that buyers – including first-time buyers - purchasing shared ownership properties pay Stamp Duty on the total value of that property, rather than just their portion. This meant that first-time buyers were having to pay 5% on the remainder above £300,000 for the whole property.
Basically, you wouldn’t have received a correlative discount even though you only owned a portion of your home and were likely buying shared ownership property in the first place because of monetary restrictions. Needless to say, this discouraged first-time buyers from purchasing shared ownership properties when it would have perhaps been a viable solution for their situation.
The new legislation is retrospective, so if you’re a first-time buyer who purchased a shared ownership property on or after 22nd November 2017, you can claim back Stamp Duty. For more information on how to do this, see Claiming a Stamp Duty Refund below.
If you’re interested in this relief, then note that first-time buyers purchasing properties valued over £500,000 receive no Stamp Duty reduction, regardless of whether you take part in a shared ownership scheme.
Do You Pay Stamp Duty on New Build Properties?
You pay Stamp Duty on new builds like you would on any other residential property, but a lot of people think you don’t. There’s no exemption criteria specifically relating to new build properties.
However, first-time buyers receive some Stamp Duty relief on all properties valued up to £500,000, including new builds. So, a first-time buyer won’t pay Stamp Duty on a new home that fits the relief criteria.
Can You Avoid Paying Stamp Duty?
Looking for tips on how to avoid Stamp Duty isn’t advisable. It’s a tax you simply have to pay. You may be lucky enough to qualify for certain exemptions. If you’re not, remember that Stamp Duty avoidance schemes aren’t the same thing. They’re also often unreliable. If they’re indeed deemed against HMRC rules, then you’re likely to have to pay the Stamp Duty anyway – plus any penalties or charges incurred.
It’s our duty as a mortgage broker to protect our clients, which is why we advise you to speak with a qualified accountant about tax.
Claiming a Stamp Duty Refund
You can only reclaim Stamp Duty if you’re eligible for a refund.
As stipulated in the 2018 Autumn budget, first-time buyers of shared ownership properties worth up to £500,000 receive full Stamp Duty relief. The chancellor has granted this relief retrospectively, therefore first-time buyers who purchased a shared ownership property worth up to £500,000 on or after 22nd November 2017 can claim back Stamp Duty.
You may also be able to claim a Stamp Duty refund if you purchased a new main residence without selling your previous residence, but then sold that previous residence within 3 years. Find out more in our guide: Stamp Duty on Second Homes.
How Do You Reclaim Stamp Duty?
To claim back Stamp Duty, you need to complete an SDLT return and send it to HMRC either online or by post. You can hire a solicitor or legal conveyancer to carry out the return for you, but it’s your responsibility to organise.