Stamp Duty Explained

Understanding Stamp Duty

Stamp Duty – or Stamp Duty Land Tax to give it its full title – is the tax you pay when buying a residential property in England, Wales and Northern Ireland that costs £125,000 or more. The equivalent in Scotland is the Land and Buildings Transaction Tax (LBTT), which applies to homes costing £145,000 or more.

The basics

It’s a normal element of buying a home and you must pay within 30 days of the transaction. Your conveyancing solicitor will generally deal with it, including paying it to the government, as part and parcel of the transaction. Nevertheless, before you even start looking for a property, it’s worth calculating the likely Stamp Duty or LBTT, so that you can adjust your price bracket accordingly.

Stamp Duty can put an extra strain on buying your own home

The amount you will have to pay depends on how much over £125,000 – or £145,000 in Scotland – the property you’re buying costs. It’s not a straightforward percentage, however; there are several rate bands, and the tax is calculated on the part of the property price that falls within each band.

The easiest way to calculate it is to let the internet do it for you. An online calculator, such as the Money Advice Service’s Stamp Duty Calculator or Revenue Scotland’s Property Transactions Calculator, will do this simply and quickly. You simply enter the asking price of a property you are considering and it gives you the tax figure you would need to allow for.

A few common questions…

For simplicity, these answers relate to Stamp Duty. A lot of the principles are similar for LBTT, but Revenue Scotland offers some useful FAQs here.

"Do I have to pay Stamp Duty if I already own a home and am buying an additional property?"

Yes, in fact the Stamp Duty is higher on additional residential properties, and applies to properties costing £40,000 or more. Let’s take the example of a property costing £275,000. If you buy it as your first or only home, you’ll need to pay £3,750 in tax. However, if you buy it as an additional home, you’ll be liable to pay £12,000. It’s worth noting that you can claim back the additional Stamp Duty on a second property if you sell your first home within three years.

If you buy with McCarthy Stone we will help you through all the processes of buying and selling your home

"My daughter and I are buying a new home together. She is a first-time buyer, but I already own a home. What Stamp Duty will we have to pay?"

If you’re buying jointly and one of you already owns one or more properties, you’ll need to pay the higher rates on the new property, as it’s counted as an additional home.

"Are there any situations where you don’t have to pay Stamp Duty?"

Yes, there are. Most notably, there’s no Stamp Duty to pay when no money is handed over for a property – for example, if it’s a gift or left in a will. However, if there’s a mortgage on that property then you do still have to pay Stamp Duty, if the value of the mortgage is more than £125,000. Also, if you transfer property because of divorce, separation or the end of a civil partnership, you don’t need to pay Stamp Duty.

McCarthy Stone will help you through every step of the process of selling and buying when you choose to buy a retirement apartment with us. Find out more in our Guide to buying.