First time buyer guide

 

Stamp Duty Explained

When you buy a property in England or Northern Ireland that costs over a certain price, you will have to pay a tax called Stamp Duty. The amount you pay will depend on the value of the house you’re purchasing and whether you’re a first-time buyer.
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What Is Stamp Duty?

Stamp Duty Land Tax (SDLT) is a tax you must pay when buying a property in England or Northern Ireland that costs over £125,000. For first-time buyers, the threshold is £300,000 if the property’s purchase price is no more than £500,000. 

The rates differ according to the type of property you buy and its price. The tax is calculated using a ‘rate bands’ system which is applied to the portion of purchase price that falls within each band.

If you’re buying in Scotland you will pay Land and Buildings Transaction Tax, and in Wales Land Transaction Tax, instead of Stamp Duty.

Stamp Duty on Main Homes – Standard Rates

People who have previously owned a home will not be charged Stamp Duty if the house costs under £125,000. For any properties costing above this threshold, the tax is calculated as follows:

Property Purchase PriceStamp Duty % Rate
Up to £125,0000%
Portion from £125,001 to £250,0002%
Portion from £250,001 to £925,0005%
Portion from £925,001 to £1.5 million10%
Portion above £1.5 million12%

So for example, imagine you’ve owned a home before and you’re now buying a house that costs £500,000:

  • Below £125,000 you pay nothing: £0
  • Between £125,001 and £250,000 you pay a 2% rate: £2,500
  • Between £250,001 and £500,000 you pay a 5% rate: £12,500
  • Your total Stamp Duty cost would add up to £15,000

Stamp Duty for First-Time Buyers

First-time buyers purchasing a house (in England or Northern Ireland) worth up to £500,000 can benefit from some extra Stamp Duty relief. You pay zero pounds on the first £300,000 and a 5% rate on the portion between £300,001 and £500,000.

But bear in mind that if you buy a property that costs over £500,000, you’ll have to pay standard rates (see the table above).

Take a look at the example below for a home costing £450,000:

If you were a first-time buyer:

  • Below £300,000 you pay nothing: £0
  • Between £300,001 and £450,000 you pay a 5% rate: £7,500
  • Your total Stamp Duty cost would add up to £7,500


Whereas if you were a home mover:

  • Below £125,000 you pay nothing: £0
  • Between £125,001 and £250,000 you pay a 2% rate: £2,500
  • Between £250,001 and £450,000 you pay a 5% rate: £10,000
  • Your total Stamp Duty cost would add up to £12,500

Stamp Duty on Shared Ownership Homes 

Since the Shared Ownership property you’re buying will be your main home, standard rates will apply. And if you’re a first-time buyer you’ll be able to benefit from the extra Stamp Duty relief (see above).  

There are two different ways of paying Stamp Duty on Shared Ownership homes:  

  • Make a one-off payment based on the property’s full market value.
  • Pay in stages, on the share that you’re buying. 

You can pick the option that suits you best depending on your circumstances.

Choosing to pay Stamp Duty upfront makes sense if the full property value is lower than the tax-free allowance – as it will be zero. 

If you go for the second option, you’ll have to pay any tax due on the share you’re buying. But afterwards, you don’t pay anything else until you own more than an 80% share of the property.

Stamp Duty Rates on Additional Homes

If you’re buying a second home you’ll have to pay an extra 3% in tax on top of the standard rates for each band. This applies to properties that cost over £40,000. 

The table below shows the rates to pay for additional homes:

Property Purchase PriceStamp Duty % Rate
Up to £125,0003%
Portion from £125,001 to £250,0005%
Portion from £250,001 to £925,0008%
Portion from £925,001 to £1.5 million13%
Above £1.5 million15%

When to Pay Stamp Duty

Once your contracts are signed and you have the keys to your new property, you must pay this tax within a 14-day period. If you don’t, you’ll be fined. It’s your legal responsibility to make sure you pay your taxes, although your solicitor will usually take care of this one as part of their duties.

Understanding whether you’ll need to pay Stamp Duty is crucial as it could have a big impact on your home buying budget. For a lowdown on all the other costs you’ll have to account for, read our article The True Costs of Buying a Home.