Buying and moving house is an important step in anyone’s life. Whether you’re a first-time buyer or an experienced property trader, the process can be as daunting as it is exciting. There are lots of boxes to tick and forms to sign before you can cross over the threshold of your new home.
Whilst the average house costs around £276,755, there are many other expenses involved in buying a property. Estate agents, solicitors and removal companies are just some of the additional costs of moving house.
One of the taxes that you have to pay when buying a property is called Stamp Duty. Although you have probably heard the term before, you might not know exactly what this tax entails and what it can cost you.
In this article, we’ll aim to give you a better idea of what Stamp Duty is and how much you will have to pay towards it.
What does stamp duty mean?
Stamp Duty Land Tax is something that you must pay if you buy property or land in England and Northern Ireland. It is only paid on purchases over a certain amount. The price boundaries are subject to change, but the government will announce this in advance.
The tax is paid on both residential and non-residential properties, although the thresholds are different. You are also eligible to pay a reduced amount or no tax if you are a first-time buyer. Sometimes Stamp Duty holidays are introduced to help the property market recover in times of economic stress.
Continue reading to find out what the Stamp Duty thresholds are and circumstances that mean you don’t have to pay this tax.
How much is Stamp Duty?
Stamp duty is a percentage based tax. The amount will depend on the total cost of the property and when you bought it. You might be exempt from paying the tax if you are a first-time buyer or the government have introduced a temporary Stamp Duty holiday.
You can use the government’s Stamp Duty calculator to work out how much Stamp Duty you can expect to pay on your property.
What are the Stamp Duty thresholds?
The percentage that you pay on Stamp Duty will be based on the total cost of your new property or land. If your house is worth £250,000 or less, you won’t have to pay any Stamp Duty. However, the percentage will increase to 5% if your property is worth between £250,001 and £925,000. This means that you will have to pay £1,250.05 if you buy a house for £250,001.
See the table below for more details.
| Cost of residential land | Stamp duty rate |
| £125,000 or less | 0% |
| £125,001 to £250,000 | 2% |
| £250,001 to £925,000 | 5% |
| £925,001 to £1.5 million | 10% |
| Over £1.5 million | 12% |
First-time buyers are exempt from paying Stamp Duty if the house they buy is less than £300,000. On houses worth £300,001 to £500,000, you would then have to pay 5% as Stamp Duty if you were a first-time buyer. For houses worth over £500,000, you would pay the same Stamp Duty as people who have bought houses before.
Non-residents of the UK (people who haven’t lived in the UK for at least six months prior) will have to pay an additional 2% on top of the standard Stamp Duty thresholds. This is relevant for property transactions that took place from 1 April onwards.
How do I pay Stamp Duty?
In most cases, solicitors will handle Stamp Duty fees and add the final amount to their fees, as well as claiming any tax relief you are eligible for. However, you can handle the tax by yourself, although you are responsible no matter who handles the Stamp Duty tax.
You have to complete a Stamp Duty Land Tax return and send it to HMRC. Make sure to send a return form, even if you don’t need to pay any money because of the category you fall into.
When do I have to pay Stamp Duty?
There is a 14 day period following the purchase of your property when you need to pay Stamp Duty. If you fail to pay in time, you will be subject to penalties and fines. You will be issued with a £100 fine if the Stamp Duty is not paid within three months of the purchase. A £200 penalty will be issued if it takes you more than three months to pay the tax.
A further tax-based penalty will be issued if you do not file the Stamp Duty return within 12 months. The penalty could cost up to the full amount of the Stamp Duty. This will be charged in addition to the fixed-rate penalty.
What is a Stamp Duty holiday?
Occasionally, the government will announce a Stamp Duty holiday. This is a set period of time when the usual thresholds will be changed and properties of a certain price will have the usual tax waived.
The most recent Stamp Duty holiday occurred during the COVID-19 pandemic. This was to help encourage more people to buy homes so that the property market didn’t hit a slump and negatively affect the economy.
The following table shows the Stamp Duty rates from 1 July to 30 September 2021. During this period, houses priced below £250,000 didn’t have to pay Stamp Duty and the higher threshold of houses priced between 125,001 and £250,000 paid a reduced amount.
| Cost of residential land | Stamp duty rate |
| £250,000 or less | 0% |
| £250,001 to £925,000 | 5% |
| £925,001 to £1.5 million | 10% |
| £1.5 million or over | 12% |
Do I have to pay Stamp Duty on additional properties?
You will still have to pay Stamp Duty if you purchase an additional property, such as a second home. The usual rate for additional properties is 3% on top of the standard Stamp Duty rates.
There’s no need to pay the additional 3% if the new property you are purchasing is to replace your current residence. However, if you have not sold your current property before you buy another, you will have to pay the higher Stamp Duty rates. You can apply for a refund if your first property is sold within 36 months of when you purchased the second house.
Summary
It’s a good idea to keep an eye out for Stamp Duty holidays as they could potentially save you thousands of pounds when buying a property. Your solicitor can sort out the necessary paperwork and payments for Stamp Duty on your behalf and then add the fees onto their final payment. You can also handle the Stamp Duty process yourself if you are so inclined.
Make sure that you pay the Stamp Duty within the 14 day period, otherwise, you will face penalties. Buying additional properties will also add to the standard tax cost.
