Who pays stamp duty on property

Last updated: May 2024 | 3 min read

When purchasing a new property, one significant expense to consider is the stamp duty tax. Whether you're a first-time buyer or acquiring a second property, read on to learn about the stamp duty origin, structure, costs, reliefs, timing, and penalties for late payment, to budget confidently for your property purchase.

What exactly is stamp duty?

Stamp Duty Land Tax (SDLT) is a fee remitted to HM Revenue & Customs during the home purchasing process in England and Northern Ireland.

In your home-buying journey, this levy will be shouldered by you, and the amount depends on the property's location, its purchase price, and whether it's your primary residence.

Stamp duty exemptions apply to properties valued below £40,000.

Origins and purpose of stamp duty land tax

Stamp duty land tax emerged as a way for the UK government to collect revenue from property transactions. It's levied on the exchange of documents, primarily on property purchase agreements.

Buyers must pay this tax when acquiring land or property over a certain price in England and Northern Ireland.

Originally introduced in 1694, stamp duty has undergone numerous changes in structure, rates, and purpose. Today's version, SDLT, was introduced in December 2003, replacing the previous stamp duty system. While SDLT predominantly concerns properties, its origins can be traced back to taxes on written legal documents, such as marriage licenses and wills.

Tiered rate structure

A notable feature of SDLT is its tiered rate structure. This indicates that the entirety of the property price isn't subjected to the same tax rate. Rather, you'll be taxed on individual segments of the property price corresponding to different stamp duty tax bands.

The amount you pay is tiered depending on the value of the property. The higher the property price, the more stamp duty you may need to pay.

For instance, on a property purchase worth £500,000, a buyer would not pay any stamp duty on the first £125,000 but would pay 2% on the next £125,000, and then 5% on the remaining amount. This structure aims to ensure fairness, so those with more expensive properties pay more tax.

It's worth noting that while SDLT applies in England and Northern Ireland, Scotland and Wales have their own versions of property transaction taxes, named Land and Buildings Transaction Tax and Land Transaction Tax, respectively.

While SDLT might seem just another tax, knowing its rates, exemptions, and reliefs can save you money.

Who is responsible for paying?

In the UK, the buyer of the property pays the stamp duty.

Once the property transaction has been finalised, the buyer must calculate and pay the tax. Sellers, on the other hand, aren't liable for stamp duty. However, they might need to consider other taxes, such as capital gains tax.

How much SDLT do you owe?

The total purchase price of your property largely determines this. These rates are different in Wales and Scotland.

Stamp duty in England and Northern Ireland

Here are the rates of stamp duty in England and Northern Ireland:

  • Up to £125,000: There's no stamp duty to pay.

  • Over £125,000 to £250,000: You'll pay stamp duty at a rate of 2% on the amount over £125,000.

  • Over £250,000 to £925,000: Stamp duty applies at 5% on the amount over £250,000.

  • Over £925,000 to £1.5 million: The rate of stamp duty is 10% on the portion over £925,000.

  • Above £1.5 million: A rate of 12% applies on the portion over £1.5 million.

Using a stamp duty calculator

How is stamp duty calculated? A stamp duty calculator offers a quick solution to ascertain the tax due on your residential property purchase. Simply enter your property price, and the calculator will present the stamp duty tax you'll pay. Many online platforms offer these tools.

You can find an SDLT calculator, on the government's website.

For a precise calculation, especially if your property circumstances are complex, consulting a solicitor or a tax expert can be beneficial.

Depending on your circumstances, you can also consider whether a conveyancer or a solicitor will be more suitable for you.

Types of purchases and stamp duty rates

As purchase prices ascend, so do stamp duty rates. Let's look at a few examples of the type of buyer you might be to see how stamp duty calculations play out:

Single residential property purchase

Consider a property in England with a purchase price of £300,000. For properties worth up to £500,000, you'll pay no stamp duty on the first £125,000, 2% on the next £125,000 (£2,500), and 5% on the remaining £50,000 (£2,500). So, the total stamp duty is £5,000.

First-time buyer

As a first-time buyer, you might be eligible for stamp duty relief. If you buy a property for £300,000, you pay no stamp duty on the first £300,000. Thus, you save £5,000 in this case.

First-time buyers often find themselves in a slightly more favourable position when it comes to stamp duty. The government offers some relief to these newcomers in the property market.

Being a first-time buyer means you have never owned or had any legal interest in a residential property in the UK or abroad. This definition holds true whether the property was inherited or bought.

Also, you shouldn't have previously been a part of joint property ownership. If all these conditions apply, you can consider yourself a first-time buyer.

We have detailed article for you with useful information, if you are thinking of purchasing your first home.

Additional property

Buying a second home or a buy to let as an investment attracts a higher stamp duty rate.

This isn't just about growing assets but managing increased tax responsibilities. The government, aiming for property market equilibrium, mandates a 3% surcharge on stamp duty bands for supplementary homes.

On a £300,000 property, you'd pay 3% on the first £125,000 (£3,750), 5% on the next £125,000 (£6,250), and 8% on the remaining £50,000 (£4,000), totalling £14,000 in stamp duty.

If you buy another dwelling without selling your primary one, expect this extra cost. Properties costing up to £40,000 escape stamp duty. But, for those between £40,001 and £125,000, a 3% charge is standard.

It's always a wise move to cross-check your calculations, particularly if you're nearing the stamp duty thresholds. Existing stamp duty rates can vary, and it's best to remain updated, ensuring you budget for this significant property cost.

Non-UK residents

For those buying property as non-UK residents, there's an additional 2% surcharge on top of the standard rates.

Civil partnership or marriage

If you're in a civil partnership or married and buying a new primary residence jointly, you'll be treated as a single unit. This means that if either of you has previously owned a main residence, you won't be seen as a first-time buyer.

Whether you're searching for your first property, upgrading to a larger one, or perhaps downsizing, always stay informed about the stamp duty rates that apply. This ensures you budget effectively and make the best financial decision when buying property.

Leasehold properties

Typically, you'll be subject to standard stamp duty rates based on the purchase price of a leasehold property. However, if you're acquiring a new property with a fresh lease or an older property that's been subdivided, resulting in new leases (referred to as 'unassigned leases'), you might incur an extra fee.

When to pay SDLT?

The clock starts ticking from the day you complete the property purchase, which is typically the day you receive the keys. This is the date you should consider when calculating your stamp duty payment deadline.

Possible penalties for late payments

Delaying your stamp duty payment can attract penalties. If you don't submit the stamp duty return and complete the payment within 14 days of the property purchase, a fine may be levied. In some cases, interest might be added to your stamp duty bill. Hence, it's wise to pay on time to avoid these additional costs.

The stamp duty refund

Overpaid on SDLT? The UK system might allow you a refund. Let's look into when and how.

Are you eligible?

Buying a new main residence but haven't sold your old one? You might qualify. If you sell the previous home within 36 months, a refund could be waiting.

Inherited a property while still settling an outstanding mortgage? This could also qualify you.

The key is the timing and specifics of your purchases. Consult the UK government website for a precise eligibility checklist. And remember, time matters: claims must be made within 12 months of the sale or the SDLT return filing.

More SDLT reliefs

Here are additional situations in which stamp duty relief may be applicable: homes owned by companies valued over £500,000 incur a 15% SDLT rate. Right-to-Buy transactions may qualify for discounts. Charities may be eligible for relief. Zero-carbon homes priced under £500,000 are eligible, while those over £500,000 receive a reduction of £15,000 and registered social landlords qualify for relief when acquiring land or property.

Find out detailed information about more SDLT reliefs on the government's website.

Need more clarity? Always consider getting legal advice. This will not only give you peace of mind with accurate budgeting but also save you money.

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