Everything You Need to Know About Stamp Duty – 2023 Guide
If you are looking to purchase a property, a cost that is often overlooked is stamp duty. This can catch you out especially if you have not budgeted correctly for the stamp duty payment.
This guide explains everything you need to know about Stamp Duty, including how it is calculated, when and how you pay it. Let’s jump in.
What is Stamp Duty?
Stamp Duty is a tax charged by the government when you purchase a property. It is not charged if you sell a property. Depending on your circumstances, Capital Gains Tax (CGT) may apply when disposing of a property.
Stamp Duty is charged on most property purchases including freehold and leasehold purchases. There are exemptions and you may find you have no stamp duty liability at all.
Who Has to Pay Stamp Duty?
The type of tax you pay will differ depending on the location of the property you are purchasing.
In England and Northern Ireland, you will be liable for Stamp Duty Land Tax.
In Wales, the tax is called the Land Transaction Tax for any properties bought after April 2018.
In Scotland, you pay a Land and Buildings Tax which is calculated and processed in a different way. This is because the property buying process and legislation around buying property is completely different in Scotland.
For this article, we will be looking specifically at Stamp Duty Land Tax (SDLT) charged in England and Northern Ireland. If the property that you are buying is valued under a certain threshold, you will not need to pay Stamp Duty.
|Type of Purchase||Threshold|
|First Time Buyers||£425,000 (with additional requirements – see below)|
|Non-Residential Land or Property||£150,000|
Do First Time Buyers Pay Stamp Duty?
If the property value is under £425,000, a first-time buyer will not need to pay stamp duty.
If the property is valued over £425,000 but less than £625,000, a first-time buyer will pay Stamp Duty for the value over the £425,000 threshold.
If a property is valued over £625,000, the first-time buyer threshold for Stamp Duty doesn’t apply and standard Stamp Duty thresholds and rates are used.
With the average property price in the UK falling under the £425,000 threshold, most first-time buyers will not be liable for stamp duty.
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How Much is Stamp Duty?
The calculation for deciding whether to remortgage early is fairly simple. First you must calculate how much you will save each month by remortgaging early. For example, if you have exactly 3 years left on your mortgage deal and switching saves you £200 a month – your total saving will be £7,200.
Stamp Duty is charged as a percentage of the property value over the threshold. For example, if you are buying a residential property for £300,000 you will pay Stamp Duty on the excess £50,000 over the threshold at a fixed percentage rate.
The Stamp Duty Rates have changed twice over the last twelve months. Below we have outlined the latest rates.
|Up to £250,000||Zero (Nil)|
|Between £250,000 and £925,000||5%|
|Between £925,001 and £1.5 million||10%|
|Over £1.5 million||12%|
Initially this may seem a simple tax to calculate but it isn’t straightforward. For example, if you buy a property valued at £1.25 million your tax is calculated as follows:
For the first £250,000 = No tax
The value between £250,000 and £925,000 = 5%
The remaining £400,000 = 10%
In this example your total tax liability would be = £73,750.
Additional Stamp Duty rates apply if you are buying additional property such as a second home.
When Do You Pay Stamp Duty?
You are required to pay Stamp Duty if you:
- Buy a freehold or leasehold property for £250,000 or more
- Buy a property in a shared ownership scheme
- Receive land or property if money is exchanged
When Do You Not Pay Stamp Duty?
You are not required to pay Stamp Duty if you:
- Are gifted land or property with no exchange of money (although Inheritance Tax rules would apply).
- If you qualify for an exemption such as being under a threshold or a first-time buyer under the increased threshold.
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How Do You Pay Stamp Duty?
The easiest way to avoid an early repayment charge is to wait until the end of the product term. For example, if you have a product with an early repayment charge for 5 years, waiting until the 5 years has elapsed will avoid the early repayment charge.
When you purchase a property, your conveyancer will calculate your Stamp Duty liability and it will be invoiced to you. Funds for stamp duty will ordinarily be billed to you after completion by your conveyancer.
Normally, you will not need to administer the Stamp Duty yourself. Instead, it is part of a conveyancer’s responsibilities. In unusual cases where you don’t employ a solicitor to oversee the transaction you will need to calculate and arrange a direct payment to HMRC yourself. Your mortgage borrowing will not include the stamp duty liability. You will need to budget for the stamp duty separate to your mortgage and have it ready to send to your conveyancer upon request.
The funds must be paid within 14 days of completion. If you fail to pay the tax in time, HMRC will add late penalties and interest to the amount you owe. You should always check that your conveyancer is handling the Stamp Duty for you. There are solicitors who don’t take on the Stamp Duty responsibility and you will need to arrange payment of the tax yourself.
Boon Brokers is a UK-based Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers provides FREE, no obligation mortgage advice including any queries you may have about Stamp Duty.
Contact Boon Brokers today for a free consultation with one of our expert advisers.