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
- Stamp Duty isn’t tax deductible. You can’t deduct Stamp Duty precisely because it is a tax
- 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.