What is Stamp Duty?

Stamp Duty is property transaction legal tax, and acts as a documenting evidence for any sale or purchase of a property. You must pay for SDLT (Stamp Duty Land Tax) when investing in a property above £500,000.  Even if your property costs lower than this amount, you must confirm your SDLT status to HMRC if you are purchasing a property over £40,000. The amount of Stamp Duty you pay is calculated in bands, depending on the value of your property- it is an absolute essential for you to know about in the property market!

As a first-time buyer, you are unlikely to pay much Stamp Duty, if any at all. However, it does apply to both freehold and leasehold properties. It was initially introduced in 1694 to contribute towards funding for the war, and has remained a financial requirement ever since. It is often required in England and Northern Ireland when purchasing a residential property or piece of land. When purchasing a secondary property, you will be required to pay an additional 3% interest on top of standard residence rates.

If you’re buying a property in Scotland, you will pay ‘Land and Buildings Transaction Tax’ (LBTT). In Wales, this alters slightly to Land Transaction Tax (LTT). The threshold prior to Stamp Duty in Scotland and Wales is £250,000. Alongside this, additional properties require 4% interest on top of standard residence rates.

When do you have to pay it? When is it not payable?

You pay Stamp Duty within 14 days of the transaction date of purchasing the property so if this payment is late, you are likely to be penalised or charged extra interest by HMRC.  

There are a number of exemptions which means that it may not be a universal necessity for all property-investors. Some of these include: 

  • If the property is transferred to a partner through divorce or relationship dissolution, Stamp Duty is not payable. 
  • It is also not payable if there is a transfer of deeds, through gifting the property to another, or including it in a will.

Alongside this, Stamp Duty can be reduced through negotiations with the seller or estate agent. This can happen if the price of the property is positioned on, or near, the next band of interest rates. 

Stamp Duty: COVID-19

The Government has implemented a temporary reduction of Stamp Duty during the pandemic to support the property market during these unprecedented times. Both first-time buyers and property owners pay no SDLT up to £500,000 between 8th July 2020 and 31st March 2021. 

If a property is purchased at £575,000, there is 0% Stamp Duty required on the first £500,000. 

The following £75,000 is charged at a 5% rate of SDLT. 

This means that the total SDLT payable for this property at the time of purchase is £3,750. 

The varying reduced rates for properties above £500,000 during ‘The Stamp Duty Holiday’ are currently set to return on 31st March, but could be extended until June. Please check the government website for updated information: <https://www.gov.uk/guidance/stamp-duty-land-tax-temporary-reduced-rates>

We wish you luck with your property-hunting!