If you’re looking to buy a new home, you may have come across the term ‘Stamp Duty Land Tax’ in your research.
Stamp Duty is a tax that is payable on all properties (and pieces of land) in England, Northern Ireland and Wales over the value of £125,000. This tax applies whether you’re buying with cash or a mortgage, on both freehold and leasehold homes.
HOW IS STAMP DUTY CALCULATED?
Stamp Duty is worked out in different bands depending on the value of the home. There are several rate bands for Stamp Duty. The bands are as follows:
||Stamp Duty rate*
|Up to £125,000
|£125,001 - £250,000
|£250,001 - £925,000
|£925,001 - £1.5 million
| Over £1.5 million
*only applies to the part of the property price that falls within each band.
Here’s an example of how Stamp Duty is calculated based on a £280,000 home:
£0 - £125,000 = £0 paid
£125,001 - £250,000 = £2500
The remaining £30,000 = £1500
Total Stamp Duty to pay on a £280,000 home = £4000
STAMP DUTY ON ADDITIONAL HOMES
If you’re looking to buy a second home or want to invest in a rental property, you will be subject to paying an extra 3% in addition to the rates in each band. The extra 3% applies to an additional property worth £40,000 or more.
FIRST TIME BUYERS: STAMP DUTY RELIEF
As of 22nd
November 2017, the government brought in Stamp Duty relief for first time buyers. If you’ve never owned a property before, you will not pay Stamp Duty on homes up to the value of £300,000.
If you’re a first-time buyer purchasing a home costing up to £500,000, you will only pay Stamp Duty on the amount that falls after £300,000. So, if you’re buying a home that is £350,000, you would just pay 5% on the remaining £50,000.
JOINT OWNERSHIP: DOES STAMP DUTY RELIEF APPLY?
If you’re buying a new home with a partner, but only one of you is a first-time buyer, then the relief depends on your marital status.
If you are a married couple, you cannot claim the relief unless you are both be first time buyers, even if you only put one of your names on the mortgage.
Couples who aren’t married can claim the Stamp Duty relief if the mortgage is put in the first-time buyer’s name only.
However, putting the mortgage in one person’s name can cause issues depending on your circumstances. You need to consider that mortgage lenders can only consider the income of the person’s name that will appear on the mortgage, even if you will both be paying for it. Depending on the first-time buyer’s income, this could limit the amount that can be borrowed.
It’s also important to consider what you would do if the worst happened; you split up with your partner. It’s not something we want to think about, but this could mean that only one of you is legally bound to property.
The maximum saving for first-time buyers through Stamp Duty relief is £5000 (if you were buying a £300,000 home) so think about whether the saving is worth it when buying with a non-first-time buyer.
WHEN DO YOU HAVE TO PAY STAMP DUTY?
Stamp Duty Land Tax is payable to the HMRC within 30 days of getting the keys to your new home i.e. completion day. The return is submitted and payment sent by your solicitor. Find out more about what a solicitor does during the home buying process.
WHAT OTHER COSTS ARE INCURRED WHEN BUYING A HOME?
There are a number of other costs associated with buying a home. Take a look at our article ‘Understanding The Buying Costs’
to see what else you’ll need to pay out when buying a new property.