Stamp duty

What is stamp duty?

Stamp duty, formally known as Stamp Duty Land Tax (SDLT) in England and Northern Ireland, is a tax you must pay if you purchase a property or land that costs more than a set amount.

In Scotland, the equivalent is Land and Buildings Transactions Tax. In Wales, buyers pay Land Transaction Tax.

In response the Covid-19 outbreak, the chancellor, Rishi Sunak, has declared a ‘stamp duty holiday’ in England and Northern Ireland.

It raises the minimum price of a property before stamp duty has to be paid to £500,000 until 30 June 2021. More details on this below.

Who has to pay stamp duty?

You’ll pay stamp duty on both residential and non-residential properties, but the threshold is different for each.

You’ll also pay stamp duty whether you’re buying:

• Your first home
• A new home
• An additional property

When do I pay stamp duty?

You’ll be required to pay stamp duty within 14 days of completion, when:

1.    The contracts are exchanged

2.    The money is transferred to the seller

3.    The documents are given to the buyer

4.    The seller has moved out

5.    The keys are handed over

How do I pay stamp duty? 

You’ll pay stamp duty by filing a SDLT return to the HMRC. If you have a solicitor, conveyancer or agent they’ll usually do this for you for a fee. They should also help you claim any relief you’re eligible for, such as a first-time-buyer discount.

How much stamp duty do I have to pay?

The amount you’ll pay in stamp duty varies as there are several different rate bands – and where you fall will depend on what type of buyer you are and how much the property costs.

As of July 8 2020, and in response to the Covid-19 pandemic, the level at which stamp duty first needs to be paid (also known as the Nil Rate Band) has risen to £500,000 in England and Northern Ireland. These changes will last until 30 June 2021.

Why has there been a change in stamp duty?

The introductory rate of stamp duty has been lifted in an effort to lower the costs for buyers who have been financially hit by the coronavirus pandemic.

It is also hoped to kickstart the property market. The industry has slowed during lockdown, with transactions down by 50% and prices falling for the first time in eight years, according to the government.

How much stamp duty will I have to pay under the temporary measures?

Stamp duty for home movers

Whether you’re a home mover or first-time buyer, you won’t pay any stamp duty on the first £500,000 of your purchase until 30 June 2021.

Previously, first-time buyers had a higher upper limit, see section below, before stamp duty kicked in, but the temporary measures align all main home buyers.
The government believes this will relieve nine out of 10 home buyers from paying any stamp duty at all.

Stamp duty now kicks in at 5% on anything over £500,001. The percentages increase when you reach £925,000.

Stamp duty it not a slab tax, but is paid on a sliding scale. This means you only pay on the proportion of the purchase that falls into the SDLT bracket, and not the entire amount.

 For example, if your new home costs £750,000 you’ll pay:

• no tax on the property’s value up to £500,000
• 5% on the value between £500,001 and £925,000.

The overall stamp duty payable here will be £12,500.

The land transaction tax in Wales

The Welsh government also announced a holiday on the taxes it charges when you're buying a home, but this is also due to end on 30 June 2021.

The land transaction tax - which replaced stamp duty in Wales in 2018 - will not now be applied on any property worth up to £250,000 until that date. The previous nil rate band threshold, which will resume from 1 July 2021, is £180,000.

How much stamp duty will I have to pay when the temporary measures are lifted?

There will be a transition period in England and Northern Ireland after the stamp duty holiday ends on 30 June 2021.

Between 30 June and 30 September 2021, the threshold for paying stamp duty will be £250,000. The threshold will then return to its pre-pandemic level of £125,000 from 1 October 2021.

Stamp duty for home movers

If you’re a home mover you’ll revert to paying the standard rate of stamp duty – so if the property you’re buying costs less than £125,000 you won’t have to pay SDLT.

However, if it costs any more than this, you’ll pay a certain percentage on different portions of the total amount.

For example, if your new home costs £400,000 you’ll pay:

• no tax on the property’s value up to £125,000
• 2% on the property’s value between £125,001 and £250,000
• 5% on the property’s value from £250,001 to £400,000

The overall stamp duty payable here will be £10,000

Stamp duty for first-time buyers

If you’re a first-time buyer, you’ll return to being eligible for a discount if your property costs up to £500,000 – and you won’t have to pay any stamp duty at all if the property costs up to £300,000.

For example, if you were buying your first home for £350,000 you’d be eligible for the 0% stamp duty band for most of the property’s value – you’d only have to pay 5% on £50,000. This means you’ll pay a total of £2,500 in stamp duty for this property – whereas if you weren’t a first-time buyer, you’d be paying £7,500.

If your first home costs above £500,000 you’ll pay the standard rate of stamp duty – which means if the property is valued at £650,000 you’ll pay £22,500 in stamp duty. This is the same as for someone buying their next home – you won’t be eligible for the first-time buyer relief.

Do the temporary stamp duty measures affect second-property buyers?

Stamp duty for second-property buyers

Second-property buyers benefit from the stamp duty holiday but are still required to pay an extra 3% on top.  

The 3% charge is a slab tax, which means it is applicable to the full purchase price of the property.

Another way of illustrating it is to add a 3% charge to each band of SDLT, as you can see in the table below.

As an example, even if your second property costs £100,000, you’ll still be required to pay the 3% charge – so that would be £3,000 in total payable as stamp duty.

Can I get a refund on stamp duty?

If you’re intending to purchase a new home and sell your old property, and there’s a delay in the selling process, you’ll be liable to pay the higher rate of stamp duty for additional properties. This means you’ll be paying an extra three per cent.

However, you’ll be able to request a refund for this amount if you sell the old property within three years, as long as you claim it either:

• Within three months of selling the old property
• Within 12 months of filing your self-assessment tax return

Whichever comes later will apply to you.

Do I pay stamp duty if I’m in Scotland or Wales?

If you’re in Scotland or Wales you’ll still have to pay stamp duty, but it’s known as:

• The Land and Building Transaction Tax in Scotland
• The Land Transaction Tax in Wales

What is the Land and Building Transaction Tax?

The Land and Building Transaction Tax (LBTT) is what you pay instead of stamp duty in Scotland. As with the rest of the UK this is calculated by percentage, but the boundaries are slightly different – you’ll need to pay the LBTT on properties costing over £145,000.

There is also an additional charge for purchasing a second property – however in Scotland it’s 4%.

You’re also still eligible for relief if you’re a first-time buyer. You’ll be exempt from paying LBTT on properties valued up to £175,000, but for anything above that the normal rates will apply.

What is the land transaction tax?

The land transaction tax (LTT) is what you pay instead of stamp duty in Wales – it’s also calculated by percentage using slightly different thresholds.

The LTT threshold was £180,000, but the Welsh government has raised it temporarily to £250,000, a measure which will last until 30 June 2021.

First-time buyers aren’t eligible for relief in Wales.