Quick guide to Stamp Duty

Posted: 17th Jul 2019

Stamp duty (more correctly, the Stamp Duty Land Tax or SDLT) is essentially a tax on property purchases.

Like it or not, it will apply in most situations where you are purchasing property – with this one caveat – while this information is correct at the time of writing (17th July 2019) there have been reports in the media that if Boris Johnson becomes PM, he is looking to switch the tax from the buyer to the seller – so, watch this space!

In what follows, the current position relating to England and Northern Ireland is described. The rules and terminologies are different in Scotland and Wales.

Note that different rules and taxation levels also apply in cases where the property or land is not residential or is mixed-use.  The situation outlined below relates exclusively to residential property and land.

Paying the tax

If you have a stamp tax liability, technically you have 30 days from completion within which to pay it to HMRC. However, typically your solicitor will deal with the appropriate payments as part of the services they provide.

There may be fines and interest payable in situations where, for whatever reason, you have not paid your stamp duty on time.

Tariffs – freehold single property owners and first-time buyers

The current bands and the amounts payable are as follows, by property purchase price:

  • first-time buyers only – no tax payable up to the first £300,000 of the price. Sums falling between £300,001 and £500,000 will be taxable at 5%. If your first-ever purchase is over £500,000, then you will fall into the standard tariffs as outlined below;
  • up to £125,000, no tax payable;
  • sums between £125,001 and £250,000 will be subject to 2%;
  • for a purchase between £250,001 and £925,000 – the tax is 5% (that’s 5% of the £250,001-£925,000 and 2% of the amount £125,001-£250,000);
  • for sums between £925,001 to £1.5 million, 10% – calculated on the same basis;
  • any amount over £1.5 million – 12%.

If you are slightly confused, the government provides a helpful calculator which will allow you to estimate the amount of stamp duty that will be payable on a pending property purchase.  There is also considerable additional information available from the same source.

Excluded options

There are very few exceptions to the above rules.  One might apply in cases where a divorce results in a redistribution of property and outright purchases related to that.  Another might be in certain circumstances where a trust is involved.

These though are unusual and if you feel you may be in a qualifying situation, you should discuss the matter in advance with your solicitor or HMRC.

Second property owners/purchasers

In situations where you already own a property or properties and are looking to purchase another, the following percentages will typically apply:

  • up to £125,000, 3% of the purchase price;
  • sums between £125,001 and £250,000 will be subject to 5% (that’s 5% of the £125,000-£250,000 and 3% of the amount below £125,001);
  • for the portion between £250,001 and £925,000 – the tax is 8%;
  • for sums between £925,001 to £1.5 million, 13%;
  • any amount over £1.5 million – 15%.

Leasehold properties

In the majority of cases, you will be paying the figures as outlined above.

In situations where this is an entirely new lease situation, the stamp duty rates may be higher.  Confirm that with your solicitor and/or HMRC.

The double property ownership trap

In some situations, you may find that you are completing on the purchase of another property before your own property has been sold.  Therefore, technically, the new home you have just purchased is your second rather than single property.

That means that typically you will be charged stamp duty at the higher rates for your property purchase because you’re technically a second property buyer.

This can occasionally catch some people out but the additional sums you paid in tax can typically be reclaimed once your own property is finally sold.  For details of these situations and how to handle them, yet again speak to your solicitor.