Stamp Duty Explained

Griffin Residential Estate Agent Online: Stamp Duty Guide

While there have been many issues impacting on the property market in 2016, stamp duty has been a constant feature. Changes to stamp duty with respect to second properties have impacted on the market and have caused confusion in many people. However, stamp duty should still be relatively straightforward and this guide aims to explain it.

Buying Your Home Online - Stamp Duty Guide

Stamp duty and land tax is paid on residential properties that sell for over £125,000. Whether you are using a mortgage to pay for the home or you are buying it outright, stamp duty applies

Stamp duty is separated into different bands and the tax that is owed is calculated on the band (or bands) that the property price falls in. The bandings are as follows...

Up to £125,000 = 0% stamp duty
Between £125,001 and £250,000 = 2% stamp duty
Between £250,001 and £925,000 = 5% stamp duty
Between £925,001 and £1.5m = 10% stamp duty
Over £1.5m = 12% stamp duty

As an example, someone buying a property at £175,000 would have to pay £1,000. This is because £125,000 of the property price falls in the 0% rate and £50,000 falls in the 2% stamp duty rate. 2% of £50,000 is £1,000 and this is the sum of money that the property buyer has to pay.

A further example comes with someone buying property at £300,000 having to pay £5,000 in stamp duty. £125,000 of the property value is attributed to the 0% rate, £125,000 is attributed to the 2% rate and £50,000 is attributed to the 5% rate. This equates to £0 + £2,500 + £2,500 which adds up to the £5,000 in stamp duty.

The change in stamp duty for people buying additional residential properties

As of the 1st of April 2016, there has been a change in the level of stamp duty paid by people who already own property. These buyers now have to pay an additional 3% in stamp duty charges. This applies on purchases over £40,000 but the additional rate doesn’t apply to houseboats, mobile homes or caravans.

For people buying an additional property, the relevant stamp duty charges are as follows:

Up to £40,000 = 0% stamp duty
Between £40,001 and £125,000 = 3% stamp duty
Between £125,001 and £250,000 = 5% stamp duty
Between £250,001 and £925,000 = 8% stamp duty
Between £925,001 and £1.5m = 13% stamp duty
Over £1.5m = 15% stamp duty

Someone that buys a new home before selling their current property will be required to pay the additional stamp duty. However, it is possible to request a refund for the additional portion of stamp duty if the original property is sold within a three year period and the refund is claimed within an appropriate time-frame. The time-frames are:

Three months of selling the original residence or
Twelve months of the filing date of the self-assessment tax return

Stamp duty has to be paid within 30 days of concluding a property purchase. If payment is not submitted in this time-scale, the buyer may face interest and penalties from HMRC. There are proposed changes that may see the payment time reduced to 14 days but as of yet, this hasn’t been confirmed.

Stamp duty doesn’t apply when transferring deeds in cases relating to divorce or separation or when gifting a property in a will.