What is stamp duty?

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What is stamp duty?

Stamp duty is a tax you have to pay whenever you buy a house in the UK (with a few exceptions). And it’s higher for a house that isn’t your main home, like a holiday home or buy-to-let.

How much you pay depends on what type of property it is, how much you buy it for and whether or not it’s your main home.

If it’s not your main home you have to pay a flat 3% on top. So if you’re buying a new main home, you need to make sure you sell the one you’re living in first – or you’ll have to pay the extra 3%. You can claim that bit back, though, if your current home sells within 18 months of you buying your new home.

Some people, like first-time buyers, pay less, or nothing at all (more on that later). And there are different rates for Scotland and Wales.

How much is it?

Stamp duty works in bands, just like income tax.

For residential property

You pay:

  • 0% on the first £125,000
  • 2% on the bit between £125,000 and £250,000
  • 5% on the bit between £250,000 and £925,000
  • 10% on the bit between £925,000 and £1,500,000
  • 12% on the bit above that.

So if you buy a house for £260,000, you pay nothing on the first £125,000, 2% on the next £125,000 (£2,500), and 5% on the last £10,000 (£500). Or £3,000 altogether.

Or if you buy it for £940,000, you’d pay nothing on the first £125,000, 2% on the next £125,000 (£2,500), 5% on the next £675,000 (£33,750) and 10% on the last £15,000 (£1,500). Or £37,750 altogether.

For mixed-use property

You pay:

  • 0% on the first £150,000
  • 2% on the bit between £150,000 and £250,000
  • 5% on the bit above that.

But what’s a mixed-use property? According to HMRC, it’s when part of the property isn’t a home (like a flat that comes with a shop or office) – or when you buy more than six residential properties in one go.

So, if you buy a flat with a shop or office for £275,000, for example, you pay nothing on the first £150,000, 2% on the next £100,000 (£2,000) and 5% on the last £25,000 (£1,250). Or £3,250 altogether.

For buy-to-let property or second (or third, fourth, etc.) homes

You pay:

  • 3% on the first £125,000
  • 5% on the bit between £125,000 and £250,000
  • 8% on the bit between £250,001 and £925,000
  • 13% on the bit above that.

You don’t have to pay any stamp duty for buy-to-let properties under £40,000.

And if it’s a caravan, mobile home or houseboat, you just pay the normal rate (3% less).

In Scotland

Stamp duty is now called ‘Land and Buildings Transaction Tax’ in Scotland. And it covers not just residential, but commercial property too. And you don’t pay anything on properties under £145,000.

You pay:

  • 0% on the first £145,000
  • 2% on the bit between £145,000 and £250,000
  • 5% on the bit between £250,000 and £325,000
  • 10% on the bit between £325,000 and £750,000
  • 12% on the bit above that.

In Wales

Stamp duty is now called ‘Land Transaction Tax’.

You pay:

  • 0% on the first 180,000
  • 5% on the bit between £180,000 and £250,000
  • 5% on the bit between £250,000 and £400,000
  • 5% on the bit between £400,001 and £750,000
  • 10% on the bit between £750,000 to £1.5 million
  • 12% on the bit above that.

Who doesn’t pay stamp duty?

First-time buyers

If you’re a first-time buyer, you don’t pay any stamp duty on the first £300,000 (or £175,000 in Scotland). But it has to be your main home.

If you buy a house for up to £500,000, you pay 5% stamp duty on the bit over £300,000. And if you buy it for more than £500,000, you pay the normal rate.

First-time buyer means just that. You can’t have owned – or inherited – any residential property before, even if you’ve sold it since, and even if it’s abroad. And if you’re buying it jointly with someone else, both of you have to be first-time buyers.

You do still count as a first-time buyer if you’ve bought commercial property before, as long as you haven’t bought anything residential.

Other exemptions

You also don’t have to pay stamp duty if the property is:

  • left to you in a will
  • transferred to you as part of a divorce or separation
  • given to you or transferred to you without money changing hands
  • worth over £125,000, but the seller agrees to accept less
  • a holiday lodge, or movable (like a caravan)
  • a houseboat (unless it comes with a large garden).

Paying stamp duty

You have to pay whatever stamp duty you owe within 30 days of your completion date. That also involves filling in a tax return – but luckily, your solicitor or conveyancer usually does that for you. They’ll either ask you to pay it in advance, or add it on to their fees.

If you’re late with your return or your payment, you can get slapped with a fine. And you can’t actually register as the official owner until you’ve got the certificate from HMRC to show you’ve paid your stamp duty.

In a nutshell

Stamp duty is a tax you have to pay whenever you buy a residential property in the UK (and in Scotland, commercial property too). How much you pay depends on what type of property it is and how much it’s worth. Your solicitor or conveyancer usually pays it and takes care of the paperwork for you.

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Can we help?

We want to open up the law to everyone. Explaining it clearly is part of that, but we also find ways to make everyday legal services cheaper and easier.

If you’d like to set up a business or register a limited company, we can help you. In fact, we’ve managed to make our cheapest company formations cost less than going direct to Companies House. We can also help with accounting, payroll and tax services or a central London address – there’s a month’s free trial, and you can cancel any time. If that all sounds a bit daunting, don’t worry. Using a formation agent (like us) to do the legwork could actually save you money. Visit our company formation webpage, or call us on 0345 122 8103 if you need advice.

Can we help?

We want to open up the law to everyone. Explaining it clearly is part of that, but we also find ways to make everyday legal services easier and more affordable.

Perhaps you’re thinking about how to take care of things if the worst happens, so there’s less stress for the people you love? We can help with willsliving willspower of attorney and more. Or call us on 0345 122 8103 if you need advice.

Can we help?

We want to open up the law to everyone. Explaining it clearly is part of that, but we also find ways to make everyday legal services cheaper and easier.

If you’re buying or selling a property, we can help you. In fact, we have everything you need to get the conveyancing process done and dusted online. Have a look at our conveyancing webpage, or call us on 0345 122 8103 if you need advice.

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