What is stamp duty and how does it work?

What is stamp duty

With the stamp duty holiday coming to an end, and reverting to the pre-pandemic rates as of 30th September 2021, there’s a lot of discussion around what that means for the property market and buyers. In this article, we’ve explored what stamp duty is, the different stamp duty rates, and how stamp duty works.

What is stamp duty?

Stamp duty rules stipulate that, whenever you buy a new property, or a piece of land for that matter, you pay a percentage of the value as a form of tax. Importantly, this only applies over a certain value (read on to find out at what point stamp duty rules come into effect). Stamp duty rates are tiered, meaning that the more expensive your property, the more tax you’ll have to pay.

How much is stamp duty?

As mentioned, which of the stamp duty rates you fall into depends on the value of the property. But that’s not all: if you’re purchasing a second property, you’ll also be required to pay a stamp duty surcharge. We’ve outlined, in full, who pays stamp duty and the rates you can expect to pay upon purchasing your property, whether you’re a first-time buyer, moving home, or buying a second house.

First time buyer stamp duty

First-time buyers are the least impacted group when it comes to stamp duty, and aren’t required to pay a penny on any home valued below £300,000. If the property exceeds this value, though, up to £500,000, a first-time buyer will have to pay 5% on the difference.

For instance: if a property is valued at £400,000, a first-time buyer will pay 0% stamp duty on the first £300,000, and 5% on the next £100,000 (which is £5,000).

When a first-time buyer purchases a house valued over £500,000, they pay the standard stamp duty rates outlined below.

Stamp duty rates if you’re moving house

If you’ve already owned property before, and are simply moving house (or purchasing property over £500,000 as a first-time buyer), you’ll be subject to the standard stamp duty rates. The stamp duty threshold values for each portion of a property’s price are as follows:

  • You aren’t required to pay stamp duty on property valued £0 – £125,000
  • You will pay 2% stamp duty on property valued £125,001 – £250,000
  • You will pay 5% stamp duty on property valued £250,001 – £925,000
  • You will pay 10% stamp duty on property valued £925,001 – £1,500,000
  • You will pay 12% stamp duty on property valued over £1,500,001

It’s important to remember that you’re only paying each percentage on the amount that exceeds the stamp duty threshold.

For instance: if your property is valued at £950,000, you’ll pay 0% stamp duty on the first £125,000, 2% stamp duty on the value £125,001 – £250,000 (£2,500), 5% stamp duty on the value £250,001 – £925,000 (£33,750), and 10% stamp duty on the value £925,001 – £950,000 (£2,500). In total, you would have to pay £38,750 on a £950,000 property.

The stamp duty holiday, brought on by the coronavirus pandemic, offers a relief on all properties valued up to £500,000, with the 5%, 10%, and 12% stamp duty rates resuming as usual at this figure. This is due to end 30th September, though, so

Stamp duty on second home

When you buy a second home, whether as a buy-to-let or a holiday home, you’ll be required to pay the regular stamp duty rates + 3%. So:

  • You will pay 3% stamp duty on property valued £0 – £125,000
  • You will pay 5% stamp duty on property valued £125,001 – £250,000
  • You will pay 8% stamp duty on property valued £250,001 – £925,000
  • You will pay 13% stamp duty on property valued £925,001 – £1,500,000
  • You will pay 15% stamp duty on property valued over £1,500,001

Stamp duty rates for overseas buyers

If you’re purchasing property in the UK from abroad, you’ll be required to pay an additional 2% surcharge on all standard stamp duty rates. This is on top of the second home surcharge of 3%, if you’re buying a holiday property in the UK.

For instance: if you’re based abroad and buying a second property valued at £100,000, your stamp duty threshold requires you to pay an additional 5% (£5,000).

How does stamp duty work?

Now you know how to calculate stamp duty according to the various applicable thresholds, it’s time to gain an understanding of when you’re required to pay it – and any instances that you might be afforded a relief.

When is stamp duty payable?

In England and Northern Ireland, you have 14 days from when your complete the purchase of your property (contracts are signed and you have the keys) to make your stamp duty payments. If you fail to make a payment within two weeks, you’ll likely incur a fine. In Scotland and Wales, you’ll usually have 30 days to pay.

Your solicitor will often go through this process on your behalf, and add the cost to their fees (they’ll also ensure you receive any first-time buyer relief, if you’re eligible).

When do the stamp duty rules not apply?

There are a couple of instances when the stamp duty rules aren’t applicable. These are each linked to the acquisition of property, rather than the purchase of it:

  • Transferring a property during separation or divorce

If you receive a portion of the value of your spousal home, or the entire property, during divorce, you aren’t required to make stamp duty payments.

  • Transferring title deeds

If you receive the title deeds to a property as part of a spouse’s will, for instance, you won’t have to pay stamp duty on its market value.

When purchasing property, it’s crucial to note all the additional fees involved in the buying process. In contrast, the selling process needn’t cost you a penny; get in touch for an instant cash offer for your home, and we’ll cover your legal costs and valuation fees. For even more expert insight and guidance, head on over to our blog.

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