05th Aug 2020
Property
By Ashley Shepherd
The amount of stamp duty you pay on property depends on the purchase price. Usually property valued up to £125,000 is tax free whereas property valued between £125,001 and £250,000 is taxed at 2%. However, this has now changed with the recent introduction of the stamp duty holiday.
Depending on your property value, stamp duty can add a significant amount to the cost of buying a house. It is therefore important to factor this in when considering your budget, as it may affect the price you are willing to pay for your dream home.
What is stamp duty?
Stamp duty land tax (SDLT), or stamp duty for short is the tax you pay when buying property or land in England and Northern Ireland. Duty is also payable in Scotland and Wales however here it is known as Land and Buildings Tax and has a slightly different process.
Stamp duty rates fall into different bands depending on the property value. The amount of tax you pay depends on your purchase price in relation to these thresholds.
England & Northern Ireland
- No duty - £0 - £125,000
- 2% - £125,001 - £250,000
- 5% - £250,001 - £925,000
- 10% - £925,001 - £1.5 million
So, the tax you pay depends on which band or bands the cost of your property falls into. For example, on a £275,000 property, you would pay the following:
- nothing for the first £125,000
- 2% on the value between £125,001 - £250,000 = £2,500
- 5% on the value between £250,001 - £275,000 = £1,250
Scotland
- Nothing on properties purchased for up to £145,000 (this is raised to £175,000 for first-time buyers)
- 2% on the portion of a property between £145,001 and £250,000
- 5% on the portion of a property between £250,001 and £325,000
- 10% on the portion of a property between £325,001 and £750,000
- 12% on the portion of a property costing over £750,000
Wales
- Nothing up to £180,000
- 3.5% between £180,000 to £250,000
- 5% between £250,000 to £400,000
- 7.5% between £400,000 to £750,000
- 10% between £750,000 to £1.5m
- 12% for properties over £1.5m
What is the Stamp duty holiday?
The government’s stamp duty holiday was introduced on the 8th July 2020. Aimed at boosting the property market during the coronavirus pandemic, the tax free threshold has been raised to £500,000. This means property purchases made during the stamp duty holiday are completely tax free up to £500,000.
Therefore, the new temporary duty thresholds are as follows:
- £0 - £500,000 – no duty
- £500,001 - £925,000 – 5%
- £925,001 - £1.5 million – 10%
- £1,500,001 plus – 12%
These changes apply to all property purchases completed within the relevant timeframes. In England and Northern Ireland, the stamp duty holiday will remain in place until the 31st March. Scotland and Wales also benefit from a relaxation to the land and buildings transaction tax (LBTT) however the rules are different.
Scotland’s LBTT holiday runs from the 15th July 2020 to the 31st March 2021 with the following thresholds:
- £0 - £250,000 – no tax
- £250,001 - £325,000 – 5%
- £325,001 - £750,000 – 10%
- £750,001 plus – 12%
Wales LTT holiday runs from the 27th July 2020 to the 31st March 2021 with the following thresholds:
- £0 - £250,000 – no tax
- £250,001 - £400,000 – 5%
- £400,001 - £750,000 – 7.5%
- £750,001 - £1,500,000 – 10%
- £1,500,001 plus – 12%
How much is stamp duty in the UK?
The stamp duty you pay in the UK depends on whether you live in England, Northern Ireland, Scotland and Wales. The following tables show thresholds for each area however to work out how much tax you would pay on a property, you could also use a stamp duty calculator.
What is a stamp duty calculator?
A stamp duty calculator works out how much tax you pay on a property. You simply add your property value and whether it is a new or second home and the calculator will work out how much stamp duty you pay based on the different thresholds.
As rates are different for England and North Ireland, Scotland and Wales, so are the stamp duty calculators. Therefore, depending on your requirements, you should either use a:
When do I pay stamp duty?
You are required to pay stamp duty within 14 days of completion in England and Northern Ireland and 30 days in Scotland and Wales. Usually your solicitor pays the tax for you however ultimately the responsibility is down to you.
If you are paying duty yourself, the governments pay your SDLT guide will walk you through the process.
Can I add stamp duty to my mortgage?
One of the ways you can pay stamp duty is to add it to your mortgage. However, you will pay interest on this over the duration on your mortgage term, which in turn will increase the overall cost.
Also adding it to your mortgage may also affect your loan to value ratio, which could impact your ability to get the best mortgage deal.
What are stamp duty refunds and exemptions?
Whilst duty is a requirement in many cases, there are occasions where you may be entitled to a stamp duty refund or exempt from paying any tax whatsoever.
Refunds
You may be entitled to a stamp duty refund if you:
- Have paid duty on a second home but and then sell your main property within 3 years.
- Are a first time buyer of a shared ownership property purchased on or after the 22nd November 2017
- Have a house with an annexe or granny flat purchased after the rule change in 2018
- Have purchased a second property that is unhabitable
If you think you may be eligible for a stamp duty refund, the gov.uk website will guide you through the online claims process.
Exemptions
In addition to the obvious duty exemption on all property below the threshold, you also may be exempt if the property is:
- Transferred to a spouse, perhaps because of separation or divorce
- Left to you in a Will
- Gifted to you (however you will not be exempt if you need to take out a mortgage on the property)
How does stamp duty on second homes work?
You are required to pay stamp duty on second homes such as holiday homes or buy to lets, both in the UK and abroad. This additional property tax is charged at 3% above the basic stamp duty rates for England, Northern Ireland and Wales and 4% for Scotland.
There are a few exemptions to this second property stamp duty surcharge. For example it is not charged Caravans, mobile homes or houseboats or on property below the value of £40,000.
Frequently asked questions
How much is stamp duty in the UK in 2020?
As a result of the governments stamp duty holiday, all property below £500,000 purchased before the 31st March 2021 will be tax free. However, this will depend on whether you live in England and Northern Ireland, Scotland or Wales as the stamp duty rates differ.
Our SDLT rates tables above explain how it works.
Can I claim back stamp duty?
You may be able to get a stamp duty refund if you sell your main property within 3 years, have an annexe or have purchased a second property that is unhabitable.
Is there a way of avoiding stamp duty?
Unless you are exempt from paying stamp duty there is no way of avoiding it. However, it’s important to consider duty rates when buying a house. Staying within a SDLT threshold can be good leverage when negotiating the best deal with estate agents.
Who is exempt from stamp duty in the UK?
You may be exempt for duty in the UK if you have been gifted property, inherited it in a Will or had the property transferred to you.