Published: 20/11/2018

It seems like not a day goes by without those dreaded words gracing the pages of the news – almost always in a seemingly negative tone. But just what exactly does this tax mean for you?
Allow us to explain.

Stamp Duty has a long history, dating back to 1694 when it was introduced solely to raise funds – through any form of ‘legal instruments’, such as newspapers, insurance policies and even cheques - for England’s ongoing war with France. A physical stamp would be applied to all documents, signifying that the tax had been paid – hence the name. So yes, although Stamp Duty nowadays is an incredibly unpopular tax to be paid on any home in England or Northern Ireland costing more than £125,000, for first homes, and £40,000 for second homes, given its history, one should – we suppose – be grateful that it only applies to properties!

How much?
Like with other taxes, how much Stamp Duty you must pay depends on the value of the property. The tax is levied at a gradual rate, as each Stamp Duty rate applies only to the part of the property within each band, not the whole value of the property. The current rates for freehold properties are as follows.  Note that rates for residential leasehold properties are different.

Up to £125,000: 0%
£125,001 - £250,000: 2%
£250,001 - £925,000: 5%
£925,001 – £1,500,000: 10%
£1,500,001 and over: 12% 

Stamp Duty on additional residential properties, such as second homes and buy-to-let properties, incur an extra 3% on top of current rates, but if you sell your main home within the first three years of buying a new home, you can apply for a refund. 
Any property valued more than £500,000 that is registered to a company, as opposed to an individual, will incur a Stamp Duty rate of 15%. 
Check out our Stamp Duty calculator here to work out how much you will have to pay on buying a property.

Exemptions and reductions
Some good news for first-time buyers came courtesy of the 2017 Budget, where it was announced that Stamp Duty would be abolished on any properties worth up to £300,000 (and costing no more than £500,000) and purchased by someone who has never owned a freehold or had a leasehold interest in a residential property, either in the UK or abroad. In real terms, this equates to a total saving of up to £5,000. This relief was recently improved on further in the 2018 Budget, as it now includes homes under Shared Ownership schemes on properties worth up to £500,000 and purchased on or after 22 November 2017. So not all doom and gloom!

The fine print:
  • First-time buyer’s relief does not apply if you are buying to let – nor if you have previously inherited a property as a gift.
  • If you buy a new home before selling your previous home, you will be liable to pay the higher rate of Stamp Duty as you will, effectively, own two homes. However – as explained above - you will be able to claim a refund.
  • A married couple jointly buying a property both need to be eligible first-time buyers.
  • An unmarried couple can still claim relief if the only person named on the mortgage deed is a first-time buyer. This may, however, affect the size of the mortgage you are able to get.
  • The maximum saving is still £5,000 – regardless of how many names are on the mortgage deed.
  • In case of a relationship break up, it is possible that either one of the parties could be left with nothing legally if they are not included on the mortgage deed. However, if you are separating and transferring a portion of the property’s value to your spouse, you won’t need to pay any Stamp Duty. The same goes for transferring your deeds to someone else – either as a gift or in your will.
For more information, visit the HMRC website.

A Stamp Duty Land Tax return must be submitted and paid within 30 days of completing the purchase.

Stamp Duty is usually dealt with by your solicitor, although you can do it yourself. However you choose to do it, the responsibility ultimately lies with you, so don’t push it off!