We’ll explain how Stamp Duty works and how much you might need to pay when you buy a property
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Anyone buying or selling a property in the UK will be aware of Stamp Duty, but might not understand how it works or how it’s calculated.
Stamp Duty has been mentioned in the press a number of times in recent years during Covid especially. The Stamp Duty Land Tax Holiday was originally introduced in July 2020 to help boost the UK property market during the pandemic. The holiday period was then extended to end on the 30th June 2021.
The UK government provided Stamp Duty relief on any purchases on properties worth under £500,000 before 1st July 2021.
In this guide, we’ll explain how Stamp Duty works and how much you might need to pay when you buy a property.
SUMMARY: When you buy a property in the UK then you’ll need to pay tax on it which is levied by the government. You should make sure that you factor this fee or charge in to any calculations when thinking about buying a home or second property.
What is Stamp Duty?
The official name is Stamp Duty Land Tax (SDLT) and it was originally introduced in England as far back as June 1694, under the reign of William III and Mary II.
Stamp Duty Land Tax is a type of tax that is charged for the sale of land (properties) in England and Northern Ireland. Scotland and Wales have their own versions of this which are Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales.
You will be charged Stamp Duty Land Tax on the purchase of any residential properties bought in the UK. The Stamp Duty rules apply to any Freehold or Leasehold residential properties that are either a main residence, second home or investment properties.
Stamp Duty Land Tax is also charged on commercial and non-residential property purchases in the UK, for more information visit our guide to commercial stamp duty.
The Stamp Duty Land Tax was updated and re-launched in the 2014 Autumn Statement by the Chancellor of the Exchequer, which included several updates to the previous system:
- Second homes and investment property rates (increased rates for second home and investment properties) *see below
- Incremental payments (move away from flat rate charges of a percentage of the full purchase price to a percentage of the price above each threshold) *see below
- First time buyer allowance (all first time buyers would receive a higher 0% allowance up to £425,000)
Note: Stamp Duty Land Tax rates are regularly reviewed and subject to change so the rates that we are suggesting may not always be up to date.
Who pays Stamp Duty?
Essentially, anyone buying a property in England and Northern Ireland will be liable to pay Stamp Duty Land Tax.
There are some differences to the rates of Stamp Duty that are charged, depending on which of the following categories that you are in.
- Standard residential property purchase (main residence)
- First-time buyers
- Second properties or Holiday homes
- Buy-to-let or investment properties
- Multiple occupancy
- Commercial and Non-residential property
- Shared ownership and Right-to-buy purchases
- Registered charities and non-profit organisations
Some exceptions also apply to Stamp Duty Land Tax which include:
- Inherited properties (e.g. left in a Will)
- Property transfers (e.g. divorce or separation)
- Purchase with no funds changing hands or financial value
- Freehold property purchase valued under £40,000
- Alternative arrangements, for example religious beliefs (e.g. Sharia Law)
There are other rules and exceptions that apply to Stamp Duty rules that are available on the HMRC website.
First time buyer stamp duty
There are now different Stamp Duty rates that are chargeable for buyers buying their first home in England, Northern Ireland and Scotland. The new scheme was introduced in 2014 to help first time buyers in the UK with purchasing a property.
Note: According to the rules you will be classified as a ‘first time buyer’ if you have never owned a property, or part-owned a property in the UK or overseas. Property ownership includes buy-to-let or investment properties, and inherited properties (regardless of whether you’ve occupied it or not).
England and Northern Ireland Stamp Duty rates for first time buyers
Stamp Duty is not charged on properties costing up to £425,000 for any main residential property purchase, as long as the value of the property being purchased is under £625,000.
Scotland Land and Buildings Transaction Tax for first time buyers
No Land and Buildings Transaction Tax will be charged on the first £175,000 of the purchase price of the property.
Wales Land Transaction Tax for first time buyers
There is no Land Transaction Tax charged on the first £225,000 of the purchase price of any main residential property for first time buyers.
Stamp Duty on a second home
One of the key changes that was introduced in the 2014 SDLT budget reforms was the rates charged on second homes and investment properties.
If you already own a main residence in England or Northern Ireland, and you are purchasing a second home for any purpose, then you will be charged a different rate of SDLT. This was introduced by the Chancellor in 2014 as part of the reforms to help to support the property market.
According to the ‘Higher rates for additional properties’ rules that are set out by the HMRC on gov.uk, you will usually pay an additional 3% SDLT charge if you’ll own more than one property.
Also, if you are replacing your main residence (e.g. bridging finance) then you might be eligible for a refund of the additional tax charged. You must sell your main residence or the property being replaced within 36 months of purchasing your new property.
To apply for a refund you should complete the HMRC apply for a repayment of the higher rates of Stamp Duty Land Tax form.
You may also apply for a refund under certain exceptions to this rule, of your property sale takes longer than 36 months, including:
- New home was purchased on or after 1st January 2017
- Exceptional circumstances prevented you from selling your home (e.g. Covid restrictions or a public authority blocking your sale)
- You have now sold your old home
To submit a claim for a refund you should write to the HMRC with a full explanation about why the sale took more than 36 months.
Note: Second home Stamp Duty Land Tax applies to any property or land purchased where you own a main residence. The only exceptions to this are caravans, motorhomes or houseboats, and if the property being purchased is intended for a family member (as long as the property deed is in their name and they are named on the mortgage).
Stamp Duty changes
The British government regularly reviews all taxes and charges that are levied to its residents. It is likely that the rules applied and the rates for SDLT will change over time so can go up or down for certain individuals.
It is best to check the HMRC website directly at the point of purchasing your property to make sure that you are fully up to date.
The last major changes that were introduced in England and Northern Ireland was in 2014, as explained above. Any major changes will usually be announced by the Chancellor during his or hers Budget Statement.
How does Stamp Duty on buy to let work?
One of the biggest Stamp Duty changes introduced in the 2014 Autumn Budget statement by the Chancellor was, buy to let and second homes.
As we’ve explained above, the same rules apply to landlords as those buying a second home. You’ll usually be charged an additional 3% on top of the standard residential home rates that are charged in England and Northern Ireland.
This means that landlords who own one or more buy to let properties, will have to pay a higher SDLT rate for any purchases. There are also certain rules that might apply of you’re a landlord who wishes to move your portfolio to a limited company. You should speak to a tax adviser or specialist for further advice in this area.
Note: you might be able to get tax relief if you are a registered social landlord, for more information you should refer to the HMRC website.
When do you pay Stamp Duty?
The rules were updated in England and Northern Ireland, in March 2019 which reduced the deadline for payment from 30 days to 14 days after your property purchase has completed.
In Scotland and Wales you still have 30 days from the date that your sale completes to make payment of the Land and Buildings Transaction Tax.
Note: if you fail to make payment before the deadline then you might face a penalty (e.g. fine) and interest may be applied.
How to pay Stamp Duty
The vast majority of property transactions, your solicitor will pay Stamp Duty to the HMRC, but it is still your legal responsibility ultimately to make sure that the payment is made.
If you do need to pay Stamp Duty or Transaction Tax for whatever reason, then here are some of the best ways to pay.
How to pay Stamp Duty in England and Northern Ireland
- Locate your Unique Transaction Reference Number (UTRN) which is an 11 digit number located on your submission receipt (online) or Stamp Duty return (paper)
- Pay online or with mobile banking direct to the HMRC by using the HM Revenue & Customs bank details. This type of transaction is the same as any other BACS payment as you would make to a friend or business.
- Debit card, cheque or cash (through your bank) is also an option for people who don’t have mobile or online banking.
How to pay Land and Buildings Transaction Tax in Scotland
- Submit your online return to register the property transaction on the Revenue Scotland website.
- Locate your Transaction Reference Number which is a 13 digit number that begins with ‘RS’ located on the receipt for your return.
- Pay online or with mobile banking direct to Revenue Scotland by using the Revenue Scotland bank details. This type of transaction is the same as any other BACS payment as you would make to a friend or business.
How to pay Land Transaction Tax in Wales
- Submit your online return to register the property transaction on the Welsh Revenue Authority (WRA) website or using the postal address.
- Locate your Unique Transaction Reference Number (UTRN) which will be sent to you once your property return has been processed by the WRA.
- Pay online or with mobile banking direct to the Welsh Revenue Authority by using the Welsh Revenue Authority bank details. This type of transaction is the same as any other BACS payment as you would make to a friend or business.
- Pay by cheque to the ‘Welsh Revenue Authority’ using your UTRN as a reference for payment. Cheques must be sent to ‘Welsh Revenue Authority, PO Box 110, PontyPridd, CF37 9EH’.
What happens if you fail to pay your Stamp Duty?
As we’ve mentioned above, it is your legal responsibility to make sure that your payment is made on time and in full.
Failure to make payment of your Stamp Duty Land Tax within 14 days will result in interest being charged and potential fines. Stamp Duty penalties and interest will be charged at the rate set by the HM Treasury from the date at which the tax is due to be paid.
