What is Stamp Duty?
Stamp Duty Land Tax (SDLT) is a tax levied by the UK Government upon the purchase of residential property.
Originally dating back to 1671, the way this tax has been implemented over the years has changed dramatically. It’s current form dates back to December 2003 (although there have been many changes to the payable rates since then).
Understanding SDLT is vital for anyone buying a property in the UK as the cost of the tax can be significant. And failing to pay the appropriate SDLT can result in significant fines and penalties.
Quick Page Navigation
- Who pays Stamp Duty?
- When do I need to pay Stamp Duty?
- What is exempt from Stamp Duty?
- How is stamp duty calculated?
- Do first-time buyers get a Stamp Duty discount?
- Is more Stamp Duty charged for second homes?
- Do non-UK residents pay more Stamp Duty?
- Can I pay for Stamp Duty with a mortgage?
- How does Stamp Duty work with leasehold property?
- Can I deduct Stamp Duty from income tax?
- Does Stamp Duty work the same for non-residential property?
- Does Stamp Duty vary in Scotland and Wales?
Who pays Stamp Duty?
Stamp duty is always paid for by the person buying property, not the person selling it. Typically, this is handled by a solicitor or licensed conveyancer as part of the legal steps of buying a property.
In addition to standard residential property, stamp duty is payable for commercial property, buy-to-let investments, and second homes too.
However, there are several things which could lead to a buyer being exempt from Stamp Duty. We will discuss these later.
When do I need to pay Stamp Duty?
Following a property purchase you have 14 days to file a stamp duty return to HM Revenue and Customs. You are also required to pay any tax due by this point too.
If you fail to file or pay SDLT by this point HMRC will automatically charge you a penalty as well as interest on the outstanding tax.
While you can appeal against a late filing penalty, HMRC will only accept this if your delay was caused by an unforeseeable, or out of your control, event. You cannot appeal against any interest charged.
If you have made a mistake filling in your stamp duty return you have 12 months to correct the error. Minor changes can be made over the telephone, but larger changes require contacting HMRC via post. This could also result in having to complete an additional return.
What is exempt from Stamp Duty?
There are a number of exceptions to stamp duty land tax. These include:
- Freehold properties worth less than £40,000 are entirely exempt from SDLT. When buying a property for this little, you will not have to pay any stamp duty, or file a return.
- A property that has been gifted, left in a will or transferred as part of a divorce settlement.
- Movable fixtures, such as freestanding furniture, carpets, and curtains are exempt from SDLT, and you can reduce your tax bill by paying for these separately. This does not apply to fixed fixtures which are attached to the property such as bathroom and kitchen fittings. In the past, buyers have been known to significantly reduce the amount of stamp duty they owe by paying hugely over the odds for their fixtures. Be warned – HMRC knows this and keeps a watchful eye out for it.
- Charities can get relief on stamp duty when buying land or property for charitable purposes.
- Registered social landlords may be able to get stamp duty relief when buying land or property.
- Zero carbon homes worth under £500,000 are exempt, with a £15,000 SDLT discount offered to more expensive green properties.
- Leases of less than seven years are exempt from SDLT.
How is stamp duty calculated?
Stamp duty is calculated using the purchase price of a property. The more expensive the property you are buying is, the more you will have to pay.
A property’s price will be split up into bands, on which the rate of SDLT increases.
For properties under £250,000, no stamp duty is payable, while a 5% stamp duty rate falls due on any additional value between £250,000 and £925,000.
This increases further for more expensive properties, as shown in the below table.
While no stamp duty is payable on property sales of less than £250,000, an SDLT return still needs to be filed. This is the case for all property worth more than £40,000.
Stamp Duty rates for residential properties (2023)
|Portion of the property’s cost||Stamp Duty Land Tax rate|
|Up to £250,000||0%|
|The next £675,000 (The portion from £250k – £925k)||5%|
|The following £575,000 (The portion from £925k to £1.5m)||10%|
|The remaining amount (the portion above £1.5m)||12%|
Worked example using today’s Stamp Duty rates:
If someone were to buy a house for £2 million, they would pay a whacking total of £151,250 in stamp duty. This is calculated as:
- 0% of the first £250k = £0.
- 5% of the next £675k = £33,750.
- 10% of the next £575k = £57,500.
- and 12% on the remaining amount over £1.5m, here £500k, = £60,000.
Total stamp duty due = £151,250
A number of factors can lead to the stamp duty rates changing, including whether you are a first-time buyer, a non-UK resident, or if your purchase is a second home. We will look into these now.
Do first-time buyers get a Stamp Duty discount?
First-time buyers can claim stamp duty land tax relief on their first property purchase, provided it is worth £625,000 or less.
If you are a first-time buyer, you will pay 0% SDLT on property up to a cap of £425,000, and 5% SDLT on any remaining amount below £650,000.
Importantly, all parties buying the house must be first-time buyers for this discount to be valid.
It is worth remembering that this relief does not apply to first-time buyers purchasing a property worth more than £625,000. If the first property you buy is worth more than £625,000 you will pay regular stamp duty rates for it.
Is more Stamp Duty charged for second homes?
A stamp duty surcharge has been in place for anyone buying a second home since 2016. This was put in place to try and curb the number of people buying second properties and typically only using them a few days in a year as a holiday home. At the time, it was felt this would help first time buyers and other get on or up the property ladder.
If buying a residential property means you will own more than one home, you will typically have to pay an additional 3% on top of the standard SLDT rates.
If this is a second home, these costs are unavoidable, but, if you are buying a new house intending to sell your old house you can claim the additional SDLT back upon the sale of your old house.
Typically, HMRC gives home sellers 36 months to sell their house and claim back the additional SDLT after they buy a property. Older requests will only be considered if an old property’s sale was delayed due to exceptional circumstances.
Do non-UK residents pay more Stamp Duty?
In England, non-UK residents are charged an additional 2% SDLT surcharge when buying property.
If you are not in the UK for more than half the year (183 days), you will not be considered a UK resident for stamp duty purposes.
This surcharge is added to the pre-existing rates, so, for example, a non-UK resident buying a second home must pay an additional 5% SDLT.
Can I pay for Stamp Duty with a mortgage?
If you cannot afford to pay your stamp duty bill outright you may have the option of increasing your mortgage to cover it.
If you have no other options but to add this to your mortgage, simply calculate the additional cost using the table above and add it to the amount you intend to borrow.
Remember though, the larger the mortgage, the more you will have to pay in interest, and potentially at higher rates.
How does Stamp Duty work with leasehold property?
When buying a residential leasehold property with a term of more than seven years, stamp duty works much as it does with freehold property.
You will need to pay stamp duty on the lease premium (the purchase price of the leasehold property) at the same rates you would on freehold property.
In addition, if the net present value of the property (the total rent over the life of the lease) exceeds the SLDT base value of £250,000, you will pay SLDT on this at 1%.
Can I deduct Stamp Duty from income tax?
Despite many myths found on the internet, you cannot deduct SDLT from Income Tax. This is even the case for buy-to-let properties.
You can however deduct SDLT from your taxable gains to reduce your capital gains tax burden when you come to sell a property.
It is also worth remembering that you do not pay VAT on stamp duty—it is a tax in itself.
Does Stamp Duty work the same for non-residential property?
The thresholds and rates are different for non-residential property.
Stamp Duty rates for non-residential properties (2023)
|Portion of the property’s cost||SDLT rate|
|Up to £150,000||0%|
|The next £100,000||2%|
|The portion beyond £250,000||5%|
Non-residential property includes pretty much all properties that are not a house, flat, or bungalow. Typical examples include farmland, forests, commercial buildings, and property that is not suitable for human habitation.
In addition, if a person or company is buying six or more residences in one transaction, it is not treated like residential property for stamp duty purposes.
When buying new leasehold commercial property, you will also pay stamp duty on the net present value of the annual rent. This is charged at 0% for the first £150,000, at 1% for the portion between £150,000 and £5m, and at 2% for annual rent over £5million.
Does Stamp Duty vary in Scotland and Wales?
The property purchase taxation system has been modernised in Scotland and Wales and works differently when compared to how it does in England.
Stamp duty in Scotland has been replaced by a different tax, called the land and buildings transaction tax (LBTT). This system broadly works like SDLT but has different bands and rates.
First-time buyer relief works much like it does in England, but the cap is much lower at £175,000.
Stamp Duty rates for residential properties in Scotland (2023)
|Portion of the property’s cost||LBTT rate||LBTT rate for an additional dwelling|
|£0 – £145,000||0%||6%|
|£145,000 – £250,000||2%||8%|
|£250,000 – £325,000||5%||11%|
|£325,000 – £750,000||10%||16%|
In Wales, stamp duty has been replaced by land transaction tax, LTT. This works much like SDLT or LBTT, but again has different rates and bands.
In addition, there is no first-time buyer relief in Wales.
Stamp Duty rates for residential properties in Wales (2023)
|Portion of the property’s cost||LLT Rate||LLT Rate for an additional property|
|£0 – £180,000||0%||4%|
|£225,000 – £400,000||5%||9%|
|£400,000 – £750,000||7.5%||11.5%|
|£750,000 – £1.5m||10%||14%|
Stamp Duty Land Tax or SDLT is a tax levied on property transactions in England, Wales, Scotland and Northern Ireland.
If you are buying a property worth more than £40,000, you must provide an SDLT return to HM Revenue and Customs. This is typically handled by the buyer’s conveyancer following the transaction’s completion.
The amount of tax payable varies depending on a lot of factors, including how much the property is worth, whether the property is classed as residential or non-residential. This will also depend on whether it is an additional property, and if you are a first time buyer.
SDLT is worked out by dividing your properties purchase price into portions (or bands), each of which is taxed at a specified rate.
The Scottish and Welsh equivalents, LBTT, and LLT work similarly to SDLT, but have different rates, reliefs, exceptions, and bands.
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