What is stamp duty and how much is it?

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Stamp duty, in a nutshell, is a tax on residential property purchases, and is one of the major fees that need to be considered when budgeting for a new home. Any first-time buyer or other person buying a new home needs to understand the details about stamp duty, so here is a guide on how much it costs and when it needs to be paid.

Who pays stamp duty?

The official name is Stamp Duty Land Tax, and it is a levy that is paid to HM Revenue & Customs when you buy a residential property. Stamp duty is always paid by the buyer, NOT the seller.

Whether the property you are buying is leasehold or freehold, if it costs more than £125,000 then you will have to pay stamp duty. If, however, you are a first-time buyer, you are exempt from paying stamp duty on the value of a property up to £300,000. First-time buyers also get a relief on properties valued between £300,000 and £500,000, as the first £300,000 will still not be subject to stamp duty (the remaining amount over £300,000 will be taxed at 5%).

First-time buyers purchasing a property for more than £500,000 will not get any benefit from this relief model, and will pay standard stamp duty. Anyone buying a second home or buy-to-let property must pay a stamp duty surcharge which stands at 3% in addition to the standard rate.

How much is stamp duty?

The rate of the stamp duty you will pay depends on the price threshold of your property. First-time buyers, as detailed above, can also benefit from stamp duty relief. Here is a list of the property price thresholds and their stamp duty rate:

– Up to £40,000: 0
– £40,000 – £125,000: 0, 3% if an additional property
– £125,000 – £250,000: 2%, 5% if an additional property
– £250,000 – £925,000: 5%, 7% if an additional property
– £925,000 – £1.5m: 10%, 13% if an additional property
– Over £1.5m: 12%, 15% if an additional property

Calculating stamp duty

Stamp duty is worked out in the same way as income tax. That means that as you progress through the different price thresholds, you incur the corresponding fee. For example, if you are an existing homeowner and purchase a new residential property to move into, your stamp duty will be calculated like this:

0% on the first £125,000: £0
2% on the following £125,000: £2,500
5% on the remaining £125,000: £6,250
TOTAL: £8,750

Who qualifies for first-time buyer relief?

There are strict requirements for someone to qualify as a first-time buyer. You must never have owned, or part-owned, any property anywhere in the world. If you buy with a partner who has owned property before, you will not qualify. Equally, if you are buying with parents who have owned a home, you will not qualify. You will also be disqualified if you have previously inherited a property, either in part or in full.

Are there any other times the stamp duty will differ?

Homes that are registered to a company, rather than an individual, and cost in excess of £500,000, will incur a stamp duty rate of 15%. Charities, however, will sometimes qualify for stamp duty relief when buying land or property for a charitable purpose. Right to Buy transactions can also qualify for discounts to stamp duty. A registered social landlord may qualify for relief when buying a new property, and zero-carbon homes under £500,000 are exempt from stamp duty altogether.

When must stamp duty be paid?

You must pay your stamp duty bill within 30 days of being entitled to take possession of your new residential property. You must still submit a return even if no stamp duty is due, unless the cost of the property was less than £40,000. Your solicitor or conveyancer should remind you not to miss your deadline.

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