Stamp Duty explained

No one ever said Stamp Duty was fun. But how much will you need to cough up?

Will @ Nested
Property market insight

For every homebuyer, the two least appealing words in the English language are Stamp Duty. But what is it, when do you pay Stamp Duty, and how much will you need to cough up?

Here, we explain everything you need to know (but were too afraid to ask).

What is Stamp Duty?

Strange as it may seem now, ‘Stamp Duty’ derives from the historic practice of embossing stamps onto the documents of purchased land; oh, and things like medicine, hats and playing cards. As you’ll soon discover, today’s Stamp Duty is a less colourful affair.

Essentially, when you buy a property in England or Northern Ireland for more than £125,000, you’ll have to pay Stamp Duty, officially known as Stamp Duty Land Tax. In Scotland and Wales there are different land taxes — LBTT and LTT — which are eminently Googleable.

There is a higher tax-free threshold on Stamp Duty for first-time buyers — £300,000 — since the law changed in November 2017.

Some properties are treated differently; for example, second homes bought for £40,000 or more incur an extra 3% charge on top of the normal rate, while mobile homes, caravans and houseboats are exempt.

How much is Stamp Duty?

The amount of Stamp Duty you pay depends on the price of the home you’re buying. Here’s a nifty table to show you how to calculate Stamp Duty.

Purchase PriceStamp Duty Rate
Zero to £125,0000%
£125,001 to £250,0002%
£250,001 to £925,0005%
£925,001 to £1.5m10%
£1.5m +12%

It’s important to note that since 2014, the way in which Stamp Duty is collected has changed. You no longer pay a percentage of the whole property’s purchase price, but instead, the percentage within each threshold. In other words, if you’re buying a house for £1m, you’ll pay nothing on the first £125,000, then 2% on everything from £125,001 to £250,000, 5% on £250,001 to £925,000, and 10% on the remainder. So if your eyes are watering at the prospect of paying all that Stamp Duty, take a long, hard look, as the bill may not be as hefty as you think.

When do you pay Stamp Duty?

When you buy a property, you have to pay Stamp Duty to HMRC within 14 days of completion. Otherwise, you’ll be hit with pesky penalties and interest.

You can do this yourself by filing a Stamp Duty return, but if that sounds like a headache, don’t worry, because your solicitors can do this on your behalf — usually on the day you complete — and add the charge to your bill. Your solicitors can also help you claim for Stamp Duty relief; for example, if you’re a first-time buyer who doesn’t need to pay.

Can you avoid Stamp Duty on a house purchase?

Short of being a first-time buyer under £300,000, or buying a property for charitable purposes, you will realistically have to pay Stamp Duty unless you fancy attending an HMRC tribunal.

However, there are some exceptions. Stamp Duty is not payable if you’re simply transferring the deeds of a home to someone else — either as a gift or in your will, or following a divorce or separation. Also, there are potential Stamp Duty discounts for social landlords and Right-to-Buy purchases.

For more information, HMRC publishes a full list of Stamp Duty exemptions.

Stamp Duty for shared ownership properties

While there is no silver bullet for how to avoid Stamp Duty on a house purchase, you have a certain amount of choice when it comes to paying Stamp Duty on a shared ownership property.

You can either make a one-off payment based on the property’s total market value, or you can pay your Stamp Duty percentage each time you buy a new share, sometimes known as ‘staircasing’. If you take this route, you owe no Stamp Duty — except anything payable on the first transaction — until you reach 80% ownership.

Stamp Duty for companies buying property

All companies are liable to pay the ‘higher rates’, which start at 3% for homes above £40,000.

Homes that are bought through companies which are more than £500,000 may incur a Stamp Duty rate of 15% of the purchase price, subject to certain exemptions. This rate doesn’t apply if the company is buying the premises as a property developer, property rental business, a farmhouse, or for other commercial interests such as properties occupied by employees.

More information is available on the UK government website.

Stamp Duty on zero-carbon homes

All zero-carbon houses and flats bought for under £500,000 are exempt from Stamp Duty. What’s more, if you buy a zero-carbon home for more than this threshold, you get a Stamp Duty discount of £15,000. Sounds great, huh? Yes, but there are some caveats.

In order to qualify, your home needs to be demonstrably ‘zero-carbon’ throughout the year, which means you’ll need a certificate from an accredited assessor to prove your home is clean, mean and green.

‘Zero-carbon’ requires a very high standard of insulation, such as triple-glazed windows, and while electricity and gas from the mains are acceptable, it should be complemented with renewable energy — think solar, wind and thermal.

Your solicitors can help make a claim on Stamp Duty relief when it comes to buying the property.

Don’t let Stamp Duty dash your dream

Of course, no one likes paying Stamp Duty. Some argue that the tax was originally designed to extract revenue from high-income households, rather than everyday punters whose house prices have risen spectacularly over the decades with little change to the Stamp Duty threshold. But your best bet is to plan your budget accordingly and seek advice from your mortgage broker for an accurate picture of what you can afford.

No one said Stamp Duty was the most fun part of buying a property, but if you arm yourself with the facts, you can budget for any gnarly costs and let your solicitors work their magic. As long as you get the home that’s right for you, even Stamp Duty is money well spent.

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