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Mortgages

Stamp duty: what is it, and do you 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.

Our quick guide is here to explain the basics. For the purposes of ease, we’re only looking at the rules regarding the purchase of residential property here. So, to be clear, different rules regarding commercial properties and land apply.

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).

Who has to pay Stamp Duty?

Anybody buying a qualifying property, with a few exemptions.

In England, qualifying properties are those valued over £125,000. In Scotland, the limit is £145,000. In Wales, it’s £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.

Who is exempt from Stamp Duty?

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

  • You’re buying in England.
  • The purchase price is £300,000 or less.
  • You’re a first-time buyer, and so is anyone you’re buying with.

If you’re spending more than £300,000, but less than £500,000, you won’t be exempt but you will get a discount.

You won’t be exempt if you’re spending more than £500,000.

There’s no exemption from LTT for first-time buyers in Wales. Qualifying criteria for first-time buyer LBTT exemptions in Scotland can be found online here.

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.

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.

England:
Purchase price Rate payable on this portion of the purchase price
£0 – £125,000 0%
£125,001 - £250,000 2%
£250,001 - £925,000 5%
£925,001 - £1.5m 10%
£1.5m+ 12%
Scotland:
Purchase price Rate payable on this portion of the purchase price
£0 – £145,000 0%
£145,001 - £250,000 2%
£250,001 - £325,000 5%
£325,001 - £750,000 10%
£750,000+ 12%
Wales:
Purchase price Rate payable on this portion of the purchase price
£0 – £180,000 0%
£180,001 - £250,000 3.5%
£250,001 - £400,000 5%
£400,001 - £750,000 7.5%
£750,001 - £1.5m 10%
£1.5m+ 12%

So if you were buying the same property for £225,000 in England, Scotland and Wales – and assuming you don’t qualify for an exemption – you’d pay the following:

  • England: £2,000 (0% of £125,000 + 2% of £100,000).
  • Scotland: £1,600 (0% of £145,000 + 2% of £80,000).
  • Wales: £1,575 (0% of £180,000 + 3.5% of £45,000).
How do you pay Stamp Duty?

You need to submit a return and any payment due within 30 days of completion, but your conveyancer can do this for you. 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.

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