Stamp Duty, officially known as Stamp Duty Land Tax, is a tax you will need to pay when you buy a home valued at more than £125,000 if you’re a current homeowner, or more than £300,000 if you’re a first-time buyer.
This tax covers the cost of legally registering your home with Land Registry. HMRC will send out a certificate to complete this process – and they won’t be able to do this until you have paid your Stamp Duty.
Calculating Stamp Duty
The amount of Stamp Duty you pay will depend on the value of your new home, and is calculated as a percentage of the total cost of your home. Take a look at the table below to find out how much you will need to pay. Property value Stamp Duty owed £0 to £125,000 Nothing £125,001 to £250,000 2% £250,001 to £925,000 5% £925,001 to £1.5 million 10% Over £1.5 million 12%
For example, if you buy a home valued at £350,000, you will pay a total of £7,500 in Stamp Duty. This is how it’s calculated:
0% on the first £125,000 2% on the second £125,000 (£2,500) 5% on the final £100,000 (£5,000)
Stamp Duty and first-time buyers
If you are a first-time buyer, as of 22nd November 2017 you will be exempt from paying stamp duty on the first £300,000 of the property price. If you purchase a property that is between £300,000 and £500,000, you will only pay Stamp Duty on amount remaining after the first £300,000.
Stamp Duty on second homes
Changes to Stamp Duty were introduced in 2016, so if you’re buying a second property – either for yourself or to rent out – an extra 3% is added to these Stamp Duty rates. This only applies if your second home is valued at £40,000 or more. If you buy a new home and there’s a delay selling your existing property, you will still have to pay the higher rate of Stamp Duty.
However, you will be able to ask for a refund on the extra 3% you’ve paid if you sell your existing home within three years. You can claim this refund within three months after the sale has been completed.
Other Stamp Duty rules and exemptions
You won’t always have to pay Stamp Duty when you buy a home. For example, if the home you’re buying costs less than £125,000, Stamp Duty won’t apply. This is also the case if you have been left a property in a will or receive it as a gift, but bear in mind you might have to pay other taxes, such as inheritance tax.
Another time you won’t pay Stamp Duty is when the home has been transferred to you after a divorce, separation, or the end of a civil partnership.
How and when to pay Stamp Duty
Your solicitor or conveyancer will be in charge of paying Stamp Duty on your behalf. HMRC needs to receive the money within 30 days of your new home legally becoming yours. If it isn’t, you could face a fine of £100 plus interest. Your solicitor will be in touch when it’s time for you to make your payment.
If you’re using a mortgage to buy your new home, your lender won’t be able to complete the purchase until you are ready to pay the Stamp Duty, as it needs to be in place for legal completion day.
A Stamp Duty Land Tax return needs to be filled in for when you’re buying any home valued at more than £40,000, regardless of whether you’re liable to pay any tax or not. You might want to go through the form with your legal representative - it’s your responsibility to make sure all the information is accurate and correct.