Paying Stamp Duty is something that you’re going to have to budget for whenever you’re planning to buy a new property. You’ll have Stamp Duty to pay whether you’re buying a bigger home to move into, buying your first home or if you’re buying a second home to enjoy.
Stamp Duty (or Stamp Duty Land Tax as it is officially named) can be an extremely complicated subject. It’s one area that buyers often overlook when they’re establishing their property budget. So here’s what you need to know about Stamp Duty, including:
- Do first-time buyers pay Stamp Duty?
- What happens if you don’t pay it?
- How much Stamp Duty you can expect to pay.
What is Stamp Duty?
When you buy property in England or Northern Ireland, you will be expected to pay tax on that purchase. That tax is Stamp Duty (SDLT), and the amount that you’ll have to pay depends on the value of the property you’re buying, where it is and whether it’s the only property that you’ll own. In most cases, you will need to pay the owed Stamp Duty within 14 days of the exchange and completion date for the property.
Stamp Duty is not applicable in Scotland or Wales. In Scotland, the equivalent is known as the Land and Buildings Transaction Tax, and in Wales, it’s referred to as the Land Transaction Tax. There are differences in how these are paid and who is required to pay them.
How Much Does Stamp Duty cost?
The first thing to know is that there are thresholds when paying Stamp Duty. For example, as the rules currently stand, a property valued at under £40,000 is completely exempt, and no Stamp Duty is required.
Recent changes to Stamp Duty have confused a lot of people and made paying the tax a little more complicated. The current tax requirements are that Stamp Duty should be paid on all property purchases over £125,000 (for residential properties). However, there are exceptions to this rule, particularly for first-time house buyers.
It gets even more complex if you’re buying a second home. In those cases, you can expect to pay an additional 3% on Stamp Duty Land Tax on any property that’s valued at more than £40,000. That percentage rises depending on the value of the second property.
It’s important to note that Stamp Duty will apply to the purchase of both freehold and leasehold properties. That’s true whether you’re buying with a suitcase full of cash or paying for the purchase with a mortgage.
Stamp Duty Bands
How much Stamp Duty you pay will depend on the value of the property you’re buying. New rates were introduced back in 2014, with updates in 2020 and 2021. As the situation currently stands, you will now pay tax on any property purchase over £125,000.
Here are the brackets of Stamp Duty, with an indication of what you can expect to pay:
- Property up to £125,000 – 0%
- Property up to £250,000 – 2% (but only 2% of the portion of the value between £125,000 and £250,000)
- Property up to £925,000 – 5% (of the portion of that value between £250,001 and £925,000)
- Property up to £1.5 million – (10% of the relevant portion between £925,001 to £1.5 million)
- You will also pay 12% on any portion of the property value over £1.5 million.
It can be confusing, but Stamp Duty is calculated the same way that income tax is calculated. A good example is:
You have agreed to pay a set price for a home that’s been valued at £500,000.
You will then pay:
- 0% on the first £125,000 – the tax payable on this is £0
- 2% on the next £125,000 – the tax payable in this instance would be £2,500
- 5% on the next £300,000 – the tax payable on this band is £15,000.
So the total Stamp Duty that you will be expected to pay will be £17,500.
Do I Pay More Stamp Duty on a Second Home?
In April 2016, changes were made to Stamp Duty. Now, if you are buying a second home, or if you end up with a second property after a house purchase has gone through (i.e. you’re still waiting to sell your current home because it was mispriced), then a surcharge is applicable. This, too, will be a percentage of the full cost of the property.
Do First-Time Buyers Pay Stamp Duty?
If you’re buying your first home, then Stamp Duty can get even more complex. As of July 2021, first-time homebuyers are eligible for Stamp Duty relief. This is a discount on your Stamp Duty and will mean that you either pay no tax on your purchase or a reduced amount. You are eligible for this exemption if:
- You are a first-time buyer (as is anyone else that you’re buying the property with)
- The total cost of the property is under £300,000 (you will pay zero Stamp Duty)
- The total cost of the property is above £500,000 (you will only pay Stamp Duty on the total that’s over the £300,000 mark)
- The property isn’t located in Scotland or wales.
Do first-time buyers pay Stamp Duty if the home they’re buying costs more than £500,000? Yes. In those cases (which are fairly rare), you will pay the normal Stamp Duty rates.
To qualify for Stamp Duty relief or exemption, you need to confirm that this is your first ever purchase of a home. You can’t have owned a property before, even if it’s been inherited or sold. That also extends to overseas property. If you have an apartment in Spain or a house in Florida, then you are not eligible for relief.
However, you can get tax relief on your first home even if you already own commercial property.
Do Non-UK Residents Have to Pay Stamp Duty?
As of April 2021, there are now different Stamp Duty rates for non-UK residents buying a property in England and Northern Ireland. As the rates currently stand, they are 2% higher than the rates paid by UK residents. However, relief is available, and there are differences in how much needs to be paid depending on whether the property is a multiple dwelling or non-residential.
Can You Get Refunds on Overpaid Stamp Duty?
With all of the changes that have occurred involving Stamp Duty, it’s no surprise that some homebuyers end up overpaying. Then there are the buyers who have bought a new home but have struggled to sell their own one and so get lumbered with the higher tax bill for having a second home.
You are allowed to request a refund on your Stamp Duty if you can sell your first home within three years of your more recent property purchase or within 12 months of filing your Stamp Duty tax return.
In most cases, you can’t apply for a Stamp Duty refund if 12 months have passed from the original filing date. There are instances where that can be overlooked, and in those cases, you can apply for a refund on Stamp Duty as much as four years after the transaction completes.
You have up to six years to apply for a refund if you were given bad advice by a professional during your purchase, although this is also rare.
How Do I Pay Stamp Duty?
While you can pay your Stamp Duty yourself, in most cases, it will be easier to leave this to your conveyancing solicitor. There is a time limit of 14 days from the day of exchange and completion, and there can be fines issued if your Stamp Duty is not paid within those 14 days.
At Lockings, we will calculate how much you’re expected to pay for Stamp Duty and will then make that payment on your behalf. The total cost of your Stamp Duty will then be added to your final bill. We will also ensure that you get any Stamp Duty tax relief that you may be eligible for, such as if you’re a first-time homebuyer.
If you do choose a conveyancing solicitor that doesn’t pay your Stamp Duty for you, then you can do this process yourself. You’ll need to pay the tax and file a return, and that time limit of 14 days is rarely, if ever, extendable.
Get Help with Your Stamp Duty
Nobody likes paying taxes, and when you’re already spending a lot of money on a home, it can feel like a mean addition to the costs. It can also lead to a lot of problems if it’s not paid, which is why this task is most commonly taken over by your solicitor. If you’re using a conveyancing solicitor, then this will only streamline the process.
If you’re in the market for a new home and you want to ensure that any purchase goes through quickly and hassle-free, contact the friendly office team at Lockings today. We can walk you through what you need to know and make sure that you get the advice you need.