Stamp Duty explained: what is it, and do I have to pay it?.

Stamp Duty – or Stamp Duty Land Tax (SDLT) to give it its proper name – is something you may be wondering about when you’re looking at buying a new home.

In a bid to spark growth within the housing market, the Chancellor announced cuts to Stamp Duty as part of the government’s ‘mini budget’ in September 2022. The cuts are part of a permanent change, unlike the 2020/2021 Stamp Duty Holiday which had an agreed end date.

The Stamp Duty cuts aim to help first-time buyers and home-movers by making property purchases more affordable.

Our quick guide is here to explain the basics and how the changes might affect you if your purchase completes after 23rd September 2022.

What is Stamp Duty?

It’s a tax on transactions involving property. It only applies in England. In Scotland, you pay something similar but different, called Land and Buildings Transactions Tax (LBTT). In Wales, you pay Land Transaction Tax (LTT).

There are different rules regarding commercial properties and land, however in this guide we’re only exploring the tax implications for purchasing a residential property.

Who has to pay Stamp Duty?

Anybody buying a qualifying property (with a few exceptions). However, it is always the home buyer who pays Stamp Duty, not the seller.

In England, qualifying properties are those valued over £250,000. This means if you’re purchasing a property under £250,000, you won’t pay any Stamp Duty (this is double the previous threshold of £125,000). If your property is worth more than £250,000, you will pay the relevant percentage of the amount that falls into each band.

In Scotland, the limit is £145,000. In Wales, it’s £225,000 (which changed on the 10^th October from £180,000). And wherever you’re buying, these limits are reduced to £40,000 if the property you’re buying is a second property (e.g. holiday home, investment property) and you already own your home.

It doesn’t matter if you’re paying cash or buying with a mortgage, whether you’re buying freehold or leasehold, or through a Shared Ownership scheme.

It’s important to remember that it’s not possible to add the cost of Stamp Duty to your mortgage.

Who is exempt from Stamp Duty?

You are exempt from Stamp Duty if all of the following apply:

• You’re buying in England.
• You’re a first-time buyer, and so is anyone you’re buying with.
• The purchase price is £425,000 or less.

If you are a first-time buyer purchasing a home worth £625,000 or under, you will not pay any Stamp Duty on the first £425,000 of your property purchase. This is up from the previous first-time buyer threshold of £300,000. You won’t be exempt if you’re spending more than £625,000.

If you are a first-time buyer in Scotland you won’t pay any LBTT on properties worth £175,000 or under, and if your property’s purchase price is above this you won’t pay anything on the first £175,000.

There are also exemptions in place to protect you from Stamp Duty (and its equivalents) if you’ve inherited a property, or are buying your partner’s share in a property following separation or divorce.

Regardless of value or location, stamp duty doesn't usually apply to caravans, motorhomes, mobile homes or houseboats.

There’s no exemption from LTT for first-time buyers in Wales.

How much does Stamp Duty cost?

Different rates apply, depending on whether the property is in England, Scotland, or Wales. The tax works like income tax – so you get a free allowance, then the tax is applied in bands.

Note: Wherever you’re buying, second properties valued at more than £40,000 attract a 3% surcharge on every band.

Note: If you are purchasing a leasehold property, you will have to pay Stamp Duty on the purchase price of the lease. In most cases, use the same rates and thresholds to work out the amount of SDLT as you would if you bought a freehold property.

England:

Here’s an example.

You buy a house for £295,000. The Stamp Duty you owe will be calculated as follows:

0% on the first £250,000 = £0

5% on the final £45,000 = £2,250

Total amount payable = £2,250

Scotland:

Wales:

So if you were buying the same property for £295,000 in England, Scotland and Wales, you’d pay the following:

• England: £2,250 (0% of £250,000 + 5% of £45,000).
• A first-time buyer in England: £0 (first-time buyers are exempt up to £425,000)
• Scotland: £4,350 (0% of £145,000 + 2% of £150,000).
• A first-time buyer in Scotland: £3,750 (0% of £175,000 + 2% of £75,000 + 5% of £45,000)
• Wales: £4,200 (0% of £225,000 + 6% of £70,000)
• A first-time buyer in Wales: £4,200 (0% of £225,000 + 6% of £70,000). There’s no exemption from LTT for first-time buyers in Wales.

How do you pay Stamp Duty?

You need to submit a return and any payment due within 30 days of completion, but your solicitor can usually do this for you and pay Stamp Duty on your behalf as part of the purchase process.

You still need to submit the return, even if no payment is due.

Only those exempt from Stamp Duty don’t have to submit a return.

Essential resources.

Here you can access calculators to help you determine how much tax you will need to pay when purchasing your property.

England: Stamp Duty Land Tax (SDLT) calculator

Scotland: Land and Buildings Transaction Tax (LBTT) calculator

Wales: Land Transaction Tax (LTT) calculator

This blog was last updated on 10th November 2022.