First time buyer guide

 

Stamp Duty Explained

When you buy a property in England or Northern Ireland that costs over £250k 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 it will be your main home.
featured image

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 £250,000. For first-time buyers, the threshold is £300,000 if the property’s purchase price is no more than £500,000. 

Before 8 July 2020, the threshold was £125,000 for home movers and £300,000 for first-time buyers. The government temporarily increased the amount that is exempt as a measure to revive the economy in the wake of the Covid-19 pandemic. The current threshold and rates will be in place until 30 September 2021 – then they will revert back to normal (see details further down). 

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 Rates on Main Homes

People who have previously owned a home will not be charged Stamp Duty if the house costs under £250,000. For first-time buyers, when the property costs under £500,000, the amount that is exempt from Stamp Duty is £300,000. 

For any properties costing above these thresholds, the tax is calculated using a ‘rate bands’ system which is applied to the portion of purchase price that falls within each band.

Between 1 July 2021 and 30 September 2021 the following Stamp Duty rates will apply:

Property Purchase PriceStamp Duty % Rate (applied to the portion of purchase price)
Up to £250,000*0%
Portion from £250,001 to £925,0005%
Portion from £925,001 to £1.5 million10%
Portion above £1.5 million12%

* £300,000 for first-time buyers purchasing a property costing up to £500,000.

So for example, imagine you’re buying a house that costs £550,000:

  • Below £250,000 you pay nothing: £0
  • Between £250,001 and £550,000 you pay a 5% rate: £15,000
  • Your total Stamp Duty cost would add up to £15,000

In another example, for a home costing £450,000, if you were a first-time buyer:

  • Below £300,000 you pay nothing: £0
  • Between £300,000 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 £250,000 you pay nothing: £0
  • Between £250,000 and £450,000 you pay a 5% rate: £10,000
  • Your total Stamp Duty cost would add up to £10,000 

Stamp Duty on Shared Ownership Homes 

Since the Shared Ownership property you’re buying will be your main home, the above rates will also apply. 

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 (valid until 30 September 2021):

Property Purchase PriceStamp Duty % Rate (applied to the portion of purchase price)
Up to £250,0003%
Portion from £250,001 to £925,0008%
Portion from £925,001 to £1.5 million13%
Portion 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.

Rates After the Stamp Duty Holiday 

If you expect to complete your purchase after 30 September 2021 the rates you pay will differ according to the type of property you buy and its price. 

Standard Rates – On Main Homes

If you’ve owned a home before, you must pay Stamp Duty when buying a property that costs over £125,000 (in England or Northern Ireland). 

This table illustrates standard Stamp Duty rates:

Property Purchase PriceStamp Duty % Rate (applied to the portion of purchase price)
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’re 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

Rates for First-Time Buyers (Including Shared Ownership)

There’s good news for first-time buyers purchasing a house (in England or Northern Ireland) worth up to £500,000. You pay zero pounds on the first £300,000 and a 5% rate on the proportion between £300,001 and £500,000.

But bear in mind that if you buy a property worth over £500,000, standard rates (see the table above) will apply.

Take a look at the example below where you can see how Stamp Duty works out for first-time buyers:

Example – Home price: £475,000

  • Up to £300,000 you pay 0%: £0
  • Between £300,001 and £475,000 you pay a 5% rate: £8,750
  • Total Stamp Duty sum: £8,750

So basically, first-time buyers would be saving £5,000 on Stamp Duty in comparison to other buyers if they bought a £475,000 home.

This relief and rates also apply to Shared Ownership properties since October 2018.

Rates for Additional Homes

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

The rates applied to additional homes would look like this: 

Property Purchase PriceStamp Duty % Rate (applied to the portion of purchase price)
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%
Portion above £1.5 million15%

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.