Stamp Duty Land Tax Rates - What is it and When Do I Pay It?

At Residential Estates, we often get asked how tax can impact on property investments. We always recommend you ask an accountant, but we do have knowledge that we are happy to share. 

Stamp Duty Land Tax is a lump-sum tax that any person who buys land or property over a certain amount of money is legally obliged to pay. The rate of tax will vary depending on the type of property or land you have purchased and the value of the property or land. For this article we are going to take a look at stamp duty on residential buildings and we are also going to focus on England and Northern Ireland as there are different rules for Buildings Transaction Tax in Scotland, and Land Transaction Tax in Wales, as they are both known.

How Much is Stamp Duty?

There was extensive reform to the previous system of Stamp Duty back in 2014. Whereas in the past there was a single rate on the entire property price, now there is a different system to understand. You’ll only pay the rate for the proportion of your property that comes under the rate. It can be quite a complex calculation to work out, but we’ll do our best to explain it to you in as concise a form as we can.

  • There is no charge on anything valued under £125,000

  • There is a 2% fee on anything between £125,001 and £250,000

  • There is a 5% fee on anything between £250,001 and £925,000

  • There is a 10% fee on anything between £925,001 and £1,500,000

  • There is a 12% fee on anything over a value of £1,500,001

For example, if you are planning to buy a property that is worth £500,000 you will be expected to pay the following in Stamp Duty:

  • Nothing on the first £125,000

  • £2,500 on the value up to £250,000

  • £12,500 on the value between £250.001 and £500,000

Total Stamp Duty = £15,000

These are the Stamp Duty Tax Rates relating to your main residence. There is a different stamp duty rate attached to any subsequent property that you purchase (on any property that is valued at £40,000 or higher). These rates are as follows:

  • 3% fee on the value up to £125,000

  • 5% fee on the value between £125,001 and £250,000

  • 8% fee on the value between £250,001 and £925,000

  • 13% fee on the value between £925,001 and £1,500,000

  • 15% fee on any value over £1,500,001

The higher the valuation of the property you are purchasing, the higher the rate of stamp duty that will be applied. You only pay the percentage relating to each threshold though. So, for example, if your property is above the 10% threshold you won’t pay 10% on the entire value of the property, but 2% on the first portion, 5% on the second, and 10% above the threshold.

Stamp Duty Tax Rate - What to know for First-Time Buyers

There is another difference since the changes were made to Stamp Duty and it relates to first-time buyers in England and Northern Ireland. As a first-time buyer you do not have to pay any Stamp Duty on the valuation of a property up to £300,000 (as long as the home costs below £500,000 in total. There is also only a 5% fee on the valuation between £300,000 and £500,000. 

  • 0% fee on valuation up to £300,000

  • 5% fee on property valued between £300,001 and £500,000

For example, if you are a first-time buyer and your property is worth £500,000, you’ll pay £10,000 in Stamp Duty on the new home.

For those who buy a home for the first time where it is valued at higher than £500,000, there is no benefit and the standard system of fees are applied. In the 2018 Autumn Budget however, a stamp duty exception was extended to first-time buyers purchasing properties under shared ownership (again for those valued up to £500,000). 

A first-time buyer is classified as a person who has never previously owned a property. This counts whether it has been bought, inherited through a family member, or in any part of the world. You only count as a first-time buyer if you are purchasing the property with a view to living in it, buy-to-let properties fall under the standard Stamp Duty system.

When Do I Pay Stamp Duty?

You only have 14 days from the date of completion on the purchase in which to pay Stamp Duty in England and Northern Ireland. The completion date is the date when all contracts are signed and dated, and the day where you are given the keys to the new property. 

If you pay any later than 14 days after completion you could face a fine and interest on top of the initial fee. Although your solicitor will make you aware of this legal requirement, you must remember that it is your responsibility to make the payment. 

What Options Do I Have with Stamp Duty?

You can add Stamp Duty to your mortgage. For many people they simply have to do this but it is not something that we would always advise. Adding Stamp Duty to your loan creates a bigger debt and it may also have a negative impact on your loan-to-value ratio. Calculating stamp duty therefore before you agree to purchase a property is crucial to ensure it is affordable, tax and all.

The Residential Estates team has spent years researching the market, developing a depth of understanding that allows us to spot the hidden gems in the property market, and know the up-and-coming locations that you should target for potential property investment. For more information please feel free to contact us today on 01244 343 355 or 

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