Stamp Duty Refund

Your complete guide to stamp duty

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You’ve probably heard of stamp duty, but do you know how it would affect you if you were buying a property?

Essentially, if you are buying a home that costs over £125,000, then you will have to pay a certain amount of Stamp Duty Land Tax (SDLT) on it. Read on for our complete guide to stamp duty, including how it works and the difference in stamp duty for first-time buyers and those purchasing a second home.

What exactly is stamp duty?

Stamp duty is a tax that you must pay if you buy a residential property or land worth more than £125,000 in England and Northern Ireland. An exception is made for second homes – you will pay stamp duty on these if they cost more than £40,000.

You will pay the same amount of stamp duty whether you are buying a property outright or through a mortgage and whether the property is classed as freehold or leasehold.

Different taxes apply in Scotland and Wales. For properties in Scotland, you will pay a Land and Buildings Transaction Tax (LBTT), and in Wales, you will pay a Land Transaction Tax (LTT).

How much stamp duty will I pay?

The amount you pay will depend on the purchase price of the property. Stamp duty goes up in a series of bands and you are charged that band’s rate for any part of the property price falling within each band. All these amounts are added up to get your final figure.

You only usually pay stamp duty on properties purchased for more than £125,000 (except for second homes), so the first £125,000 is effectively taxed at 0%.

The progression of the bands goes as follows:

£0 to £125,000 0%
£125,001 to £250,000 2%
£250,001 to £925,000 5%
£925,001 to £1.5m 10%
More than £1.5m 12%

Say, for example, you purchased a property costing £300,000.

You would pay:

0% on the first £125,000 = £0
2% on the next £125,000 = £2,500
5% on the final £50,000 = £2,500

You would therefore pay a stamp duty of £5,000.

What about second homes?

If you buy a second home or more residential properties, then you will probably have to pay extra stamp duty on your purchases. This applies whether they are second or holiday homes, or are buy-to-let rental properties. It does not, however, apply to caravans, mobile homes or houseboats.

Essentially, you will pay an extra 3% on each band. You will pay stamp duty on second homes worth more than £40,000, however.

This means that you will pay 3% between £40,001 and £125,000, 5% between £125,001 and £250,000, and 8% between £250,001 and £925,000, etc.

If you buy a new main home but are delayed in selling your previous main home, then you will have to pay the higher rate as you will temporarily own two properties. If you do go on to sell or give away your previous main residence within three years, however, then you can apply for a refund of the additional stamp duty you have paid.

You must make this claim within three months of selling your previous main home, or within 12 months of the filing date of your SDLT tax return if this is later.

What is first-time buyers’ stamp duty relief?

First-time buyers do not pay as much stamp duty as other buyers if the property they are buying costs less than £500,000. If the property costs up to £300,000, then you will not pay any stamp duty at all. This will save you up to £5,000.

If the property costs more than £300,000 but no more than £500,000, then you will pay stamp duty on the amount between £300,001 and £500,000.

If, for example, the property costs £400,000, then you would have to pay stamp duty on £100,000 of the cost.

If it costs more than £500,000, then you will not qualify for first-time buyers’ relief and will pay the standard stamp duty on the property.

From October 2018, first-time buyers using a Shared Ownership scheme have also been eligible for first-time buyers’ relief, as long as the property costs no more than £500,000.

If you paid in stages and were not previously eligible but now are, then you may be able to claim the extra tax back.

What about stamp duty relief for joint owners?

If you are a married couple buying a home between you, then you must both be first-time buyers in order to qualify for the first-time buyers’ relief.

If you are not married, then you can only claim the relief if the only person named on the mortgage is a first-time buyer.

It’s worth remembering, however, that the maximum saving is still £5,000, regardless of how many people are named on the mortgage deed.

If you only name one person on the mortgage deed, then only their income will be considered by the lender. This could affect how big a mortgage you can get, as well as any rates or offers for which you might be eligible.

You will also need to consider what might happen if you were to split up. If only one partner is named on the mortgage, then the other could be left with nothing.

When should I pay my stamp duty?

You must submit a SDLT return and pay anything you owe within 30 days of completing the purchase of your property. If you fail to do so, then you may be charged penalties and interest by HMRC.

Are there circumstances in which I won’t have to pay stamp duty?

You do not have to pay stamp duty on properties up to £125,000. If the asking price is close to this (or to one of the other bands), then you might consider asking the seller or their agent if they would be willing to accept a slightly lower price.

There are a couple of other circumstances that might mean that you do not have to pay stamp duty:

  • Transferring property when separating

If you are getting divorced or splitting from your partner, then you will not have to pay any stamp duty if you are transferring a portion of the property to them.

  • Transferring deeds

If you transfer deeds because you are giving the house to someone else as a gift or in your will, then you will not have to pay stamp duty. If you exchange properties with another person however, then you will both have to pay stamp duty based on the market values of your properties.

How do I pay stamp duty?

You usually have to submit a return, even if your house costs less than £125,000. Your solicitor will usually deal with the return and payment and add it onto your bill, though you can also do this yourself if you choose. In either case, it is your responsibility to make sure that any money you owe is paid on time.