Stamp Duty

Stamp duty is a big part of buying a home in this guide we'll look into exactly what it is and how it affects you.

Stamp duty is one of the biggest single costs your face when purchasing a property, the amount you pay will vary depending on your circumstances and later in this video we'll show you exactly how to work it out

• What is Stamp Duty Tax?

Stamp duty is a UK property tax which applies when you purchase a property or a piece of land it is sometimes known as stamp duty or SDLT it applies to people purchasing property over in a certain price in England and Northern Ireland, Scotland and Wales have the same principles, but these vary.

• How is Stamp Duty payment calculated?

The amount you pay depends on the purpose of the property and the value of the property as well as the type of buyer that you are, so for example a first-time buyer would pay a different amount of stamp duty as a landlord.

• Common misconceptions with Stamp Duty

There are a few misconceptions around stamp duty so if you're new to this, please remember the buyer of a property not the seller pays stamp duty, you never pay stamp duty when you sell but you may have to pay capital gains tax. Stamp duty isn't tax deductible you don't pay VAT on stamp duty it's charged at its own rates; stamp duty exemption areas don't exist whether you qualify for an exemption depends on your situation and your property value.

• When and how do you pay?

So, you pay stamp duty when you purchase a piece of land or a property, now HMRC must receive this within 30 days of completion so to pay this you simply fill out a stamp duty return form and send this to HMRC.

• Who handles this for you?

So, your solicitor normally handles this for you at the time they manage your transactions.

• Why do you pay Stamp Duty?

Stamp duty was originally charged to cover the cost of legal documentation when purchasing a property, now the name stamp comes from the government approval that they leave on your documentation, however most things are now done digitally but you still do need to pay stamp duty tax.

• How does the UK Government spend Stamp Duty Tax?

The government mainly used stamp duty to gather revenue now the HMRC will only issue certain documents such as the certificate of land ownership when they've received the payment in full.

• Who pays Stamp Duty?

Almost anyone that purchase the property above a certain value will have to pay stamp duty. You will have to pay stamp duty if:

You purchase a residential property or a piece of land worth over a 125 thousand pounds.

You purchase a new main residence to replace your previous one, however this doesn't include remortgaging you previously sold property and now rent or live with friends or family but are buying another property.

You marry and then buy property with your partner even if one of you is a first-time buyer.

You're a first-time buyer and you purchase a property valued over 500 thousand pounds.

You're not a first-time buyer and you buy a shared ownership property.

You purchase a non-residential property above a 150 thousand pounds.

You buy mixed-use land or property above 150 thousand pounds.

You are being added to a mortgage or title deeds this is considered as buying a share of a property or land.

• You pay Stamp Duty if:

So, you will need to buy additional stamp duty if: you purchase a second residence, you're a private landlord and your purchase a buy-to-let or you purchase a buy-to-let property through a limited company.

• Exemptions and relief

There are however some people that are exempt from paying stamp duty or qualify for stamp duty relief.

So, you do not need to pay stamp duty:

If you're a first-time buyer and you purchase the property for 300 thousand pounds or less.

You receive land or property ownership in certain situations outlined by HMRC for example through divorce properties left you in a will instead of paying stamp duty on an inherited property you pay inheritance tax.

Or you purchase a freehold property for less than 40 thousand pounds.

You buy a new or a signed lease of at least 7 years with a premium less than 40 thousand pounds and an annual rent below one thousand pounds.  

You buy a new or assigned lease of less than seven years where the amount is below the residential or non-residential Stamp Duty Land Tax threshold.

You may qualify for stamp duty relief if you are a first-time buyer, purchasing properties worth up to five hundred thousand pounds purchasing multiple dwellings where a transaction or several linked transactions include freehold or leasehold interests.

If a building company buys your home and you buy your home from the building company.

If your employer purchases your home because you are moving with work.

If it is a compulsory purchase, for example if a council purchased the property to sell it on to a property developer.

In instances where a property developer is subject to planning obligations.

If there is a transfer of property between companies.

When charities purchase land and property for charitable purposes.

If you are purchasing a right by property or in certain situations where registered social landlords buy land or property.

• Stamp Duty rates

Like we mentioned earlier in this video the amount of stamp duty you pay would depend on the value and the purpose of the property that you wish to buy.

• Stamp Duty rates for first-time buyers

If you're buying a main residence and you're not a first-time buyer, standard stamp duty rates will apply, this includes people who previously owned a property that are purchasing a new one or someone who is replacing their main residence with a new one. In this case you will not need to pay stamp duty on properties worth up to one 125 thousand pounds for properties worth between a 125 thousand and one pound and 250 thousand pounds, you will need to pay 2% of the property value in stamp duty. This rises to 5% for properties worth 250 thousand and one pound to 925 thousand pounds and 10% for properties worth 925 thousand and one pound to 1.5 million pounds. Finally, all properties worth more than 1.5 million and one pound will need to pay 12% stamp duty.

So, let's work through an example, so you're purchasing a property at 700 thousand pounds, the maximum amount of stamp duty you will pay is 5%, but you don't pay 5% on the floor value of 700 thousand.

• How much Stamp Duty do you pay?

You pay different portions depending on the value of the rates, so in this case you'll pay no percent on the first 125 thousand pounds of the property value totalling at zero. 2% on the next 125 thousand pounds of the 700 thousand pounds property. This is the portion from one 125 thousand and one pound up to 250 thousand pounds. That rate is charged at 2% which means this will cost two and a half thousand pounds. And the final 450 thousand pounds of the 700 thousand pounds property will fall into the bracket of 250 thousand and one pound up to 925 thousand pounds. So, this will be charged at 5%, this portion would total up to 22 and a half thousand pounds. So, when you add all these different portions charged at different rates you add the zero. 2 and a half thousand and the 22 and a half thousand pounds all together to get a total stamp duty tax of 25 thousand pounds but that's not all if you're purchasing a second residence or a buy-to-let you'll have to pay 3% stamp duty surcharge on top of the standard stamp duty rate.

• Stamp Duty for first-time buyers

You might remember that the first time-buy it's a little bit different, so first-time buyers can claim stamp duty relief up to 300 thousand pounds and reduced rates of stamp duty between 300 thousand and one pound all the way up to 500 thousand pounds, however if a first-time buyer can purchase the property which is above 500 thousand pounds, they are not eligible for the relief at all.

• Stamp Duty relief for first-time buyers’ example

So, let's look at another example, this time you're a first-time buyer and you're purchasing a property for 500 thousand pounds. You pay zero percent on the first 300 thousand pounds of these 500 thousand pounds, and you'll pay the reduced rate of 5% of the remaining 200 thousand pounds, therefore overall, you'll pay 10 thousand pounds and stamp duty.

Now remember this stamp duty reduction is only available for first-time buyers purchasing a property up to 500 thousand pounds.

• Stamp Duty non-residential and mixed-use land

Now let's look at stamp duty on non-residential and mixed-use land in this case you will pay stamp duty on anything above 150 thousand pounds, so for example anything between 150 thousand pounds and one pound through to 250 thousand pounds, you will pay 2% anything above 250 thousand pounds and one pound you will pay 5% stamp duty when we say non-residential properties this could include commercial, such as a shop agricultural land, forests, any land which is not being used for residents or six or more properties that are being purchased in one single transaction.

• What is a mixed-use property for Stamp Duty?

A mixed-use property is one with both residential and non-residential elements such as a flat above a restaurant.

In this final example let's say you're buying a commercial property for 300 thousand pounds, the maximum rate of stamp due to your pay is 5% but this is only on the portion of the property value over 250 thousand pounds, so in this instance it would be 50 thousand pounds. You pay some stamp duty at 2% and sell at 5% so there was no stamp duty to pay on the 150 thousand pounds the next 100 thousand pounds falls into the 150 thousand and one pound to 250 thousand portion and this will be charged at 2% stamp duty that will come to 2 thousand pounds. The final 50 thousand in the to 150 thousand- and one-pound bracket will be charged at 5% coming to two and a half thousand pounds, so to forget the total stamp duty we will add the 2 thousand and the 2 and a half thousand together to get 4 and a half thousand pounds.

• Can you add Stamp Duty to your mortgage?

It's sometimes possible to borrow the amount you need to cover stamp duty when you take out your loan you simply add this to the amount of borrowing when taking out your mortgage.

• Consequences of adding Stamp Duty onto your loan

You need to carefully consider whether adding stamp duty to your mortgage is the best for your situation. There are consequences that you need to consider before making your decision. The main consequences if adding stamp duty to your loan are you'll have to pay interest on the amount you borrow for the entire length of your mortgage and borrowing more could affect your loan to value ratio and stop you from obtaining the most competitive deals.

• Do you pay Stamp Duty on shared ownership properties?

You still pay stamp duty on shared ownership properties even though you're only purchasing a portion in fact you'll pay stamp duty on the full value of the property, unless you're a first-time buyer, for example, if you're buying a 50% share in a property with the market value for the 160 thousand pounds for 80 thousand pounds you will still have to pay stamp duty on the full 160 thousand pounds not your 80 thousand pound share.

• How do you reclaim Stamp Duty?

To claim back stamp duty, you need to complete a stamp return and send it to HMRC by post or online. You can hire a solicitor or a legal professor to do this for you if you wish.

That was our brief introduction to stamp duty, thank you so much for watching this video, be sure to follow us on our social media channels at John Charcol to keep up to date with the latest JC news, see you next time.