Guide to Stamp Duty

Buying a new home can be costly and time consuming, and of your overall legal costs, Stamp Duty Land Tax is likely to set you back the furthest. With thousands of pounds at stake, it is crucial to fully understand your potential tax bill (and whether you qualify for tax relief) before embarking on your home buying journey.

The rules surrounding Stamp Duty are complex, with separate rules depending on whether you already own a home, you are a first time buyer, you are a commercial buyer, or you are purchasing a second home or buy to let property.

At Bird & Co, we provide legal advice to individuals across a wide range of areas with particular expertise in conveyancing. We have in depth understanding of the rules surrounding Stamp Duty (or Land Transaction Tax in Wales) and we can arrange its payment, and complete your HMRC tax return, on your behalf.

For some general guidance about Stamp Duty, we have put together this helpful guide which addresses some frequently asked questions.

If you would like clear, understandable advice about Stamp Duty or Land Transaction Tax, get in touch with our conveyancing solicitors by giving us a call at one of our offices in Grantham, Newark, and Lincoln, emailing enquiries@birdandco.co.uk, or by filling in our online enquiry form.

What is Stamp Duty?

Stamp Duty Land Tax (commonly just referred to as Stamp Duty) is tax that falls due when you purchase a property or land over a certain value in England and Northern Ireland. The current tax-free thresholds are:

  • £125,000 for residential property (except higher rate Stamp Duty payers)
  • £150,000 for non-residential/commercial land and property

In Wales, you pay Land Transaction Tax (LTT) instead of Stamp Duty, the rules for which are slightly different. The tax-free thresholds are:

  • £180,000 for residential property (except higher rate LTT payers)
  • £150,000 for non-residential/commercial land and property

For both Stamp Duty and LTT, higher rates of tax apply for some types of residential property ownership and interest worth over £40,000, including second homes and buy to lets.

Who pays Stamp Duty?

Only the purchaser pays Stamp Duty. This means selling a property will not attract tax (unless the property is not your primary residence, in which case you may have to pay Capital Gains Tax).

When do you pay Stamp Duty?

You must file a Stamp Duty Land Tax return and pay your Stamp Duty within 14 days of your transaction (reduced from 30 days from March 2019) – this is normally the date you complete the purchase of your home. If you fail to file a tax return within 14 days, HMRC could charge you penalties and interest.

How do you pay Stamp Duty?

Your solicitor will deal with the tax return and arranging payment of Stamp Duty on your behalf. You should arrange with your solicitor to transfer the Stamp Duty to them in preparation for its transfer to HMRC upon completion of your purchase.

If you would prefer, you can deal with payment of Stamp Duty yourself but you must ensure to submit the tax return and make payment within 14 days of completion. Typically, it is simpler for your solicitor to handle payment on your behalf and this is generally built into our fixed fees.

How much is Stamp Duty?

The basic rates of Stamp Duty for residential purchases are as follows:

From

To

Stamp Duty rate

£0

£125,000

0%

£125,001

£250,000

2%

£250,001

£925,000

5%

£925,001

£1.5 million

10%

Over £1.5 million

12%

 

If you are buying a second home, or buy to let property, you will pay higher rates of Stamp Duty. This is an extra 3% on top of the basic rates for all properties valued over £40,000, i.e.:

From

To

Stamp Duty rate

£0

£125,000

3%

£125,001

£250,000

5%

£250,001

£925,000

8%

£925,001

£1.5 million

13%

Over £1.5 million

15%

 

The rates of Stamp Duty for commercial property purchases are as follows:

From

To

Stamp Duty Rate

£0

£150,000

0%

£150,001

£250,000

2%

Over £250,000

5%

 

How to calculate Stamp Duty

Below are a few examples to demonstrate how Stamp Duty is calculated:

If you purchase a residential property for your main residence worth £450,000, you will incur the following Stamp Duty at the basic rates:

  • First £125,000 at 0% - £0
  • Second £125,000 at 2% - £2,500
  • Remaining £200,000 at 5% - £10,000
  • Total Stamp Duty - £12,500

If you purchase a second home worth £450,000, you will incur the following Stamp Duty at the higher rates:

  • First £125,000 at 3% - £3,750
  • Second £125,000 at 5% - £6,250
  • Remaining £200,000 at 8% - £16,000
  • Total Stamp Duty - £26,000

Rules for first time buyers

Since November 2017, first time buyers are not charged Stamp Duty for purchases up to £300,000. This means you could save up to £5,000 when taking your first step onto the property ladder.

For first time purchases between £300,000 and £500,000, you will have to pay Stamp Duty at a rate of 5%. However, for first time purchases over £500,000, you will have to pay Stamp Duty on the entire purchase at the usual base rates.

For example, if you purchase a property worth £300,000, if you are not a first time buyer, Stamp Duty will be £5,000; if you are a first time buyer, Stamp Duty will be £0.

If you purchase a property worth £450,000, if you are not a first time buyer, Stamp Duty will be £12,500; if you are a first time buyer, Stamp Duty will be £7,500.

In Wales, there is no first time buyer relief for LTT. Tax will apply regardless of the value of the property.

What if I’m a first time buyer but my partner is not?

If you plan on purchasing a property with your spouse, both of you must be first time buyers to take advantage of the Stamp Duty relief.

If you are buying with an unmarried partner, you may be able to take advantage of the tax relief if the property is only in the name of the first time buyer. However, you should seek careful legal advice before pursuing this option. If you are unmarried, the non-owner partner will have no rights to the property if the owner dies or you break up. You may also find it harder to get a mortgage as affordability assessments will only take into account one person’s income.

Am I a first time buyer if I inherit property?

The term “first time buyer” is slightly deceiving. You actually cannot qualify for first time buyer relief if you have any other interest in property. This includes if you have inherited property and if a family member has transferred an interest in property into your name.

Can I get first time buyer Stamp Duty relief on a shared ownership property?

You can now get first time buyer Stamp Duty relief on shared ownership properties. Like other first time purchases, you can get relief on purchases up to £500,000, with Stamp Duty only incurring on the value over £300,000.

Stamp Duty on leasehold property

Stamp Duty is payable whether you buy a freehold or leasehold property, however, the amount of tax you pay for a leasehold property will depend on whether the lease is new because you are the first purchaser (“unassigned”) or if you are a subsequent purchaser (“assigned”).

If the lease is assigned, you will typically pay Stamp Duty as if the property was freehold – a lump sum calculated according to the purchase premium.

If the lease is unassigned, you will have to pay Stamp Duty on both the purchase price of the lease and on the rent payable over the term of the lease at current prices (called Net Present Value). You calculate Stamp Duty separately for the premium and the rent (which is calculated at a flat rate of 1%) then add the payable tax together. Unless the rent is high, it is rare to clear the £125,000 tax-free threshold and pay Stamp Duty on the rent.

For example, if you pay £250,000 for an assigned lease and the rent’s Net Present Value is £150,000, Stamp Duty is calculated as follows:

  • £2,500 on the taxable £125,000 of the purchase premium at the base rate of 2%
  • £1,250 on the taxable £25,000 of the rent at a rate of 1%
  • Total Stamp Duty: £3,750

Whether or not Stamp Duty falls due, you must file a Stamp Duty Tax Return unless the lease is:

  • 7 years or more but the purchase premium is less than £40,000 and the annual rent less than £1,000
  • Less than 7 years

I’m getting a divorce; do I pay Stamp Duty if I receive my partner’s share of our property?

You do not have to pay Stamp Duty if you receive a transfer of property (or an interest in property) as part of an agreement or court order if:

  • You are getting a divorce
  • You are dissolving a civil partnership
  • You are annulling your marriage
  • You are legally separating

There is also no requirement to tell HMRC about the transfer, even if it is worth more than the minimum Stamp Duty threshold.

I am being gifted a property; do I have to pay Stamp Duty?

You do not have to pay Stamp Duty if you are not giving “chargeable consideration” for your property or share in a property. Chargeable consideration includes:

  • Money
  • Goods
  • Release from debt
  • Works or services
  • Transfer of debt

For example, if your friend transfers you their property and in exchange, you release them from their debt of £100,000, this is chargeable consideration and you will have to pay Stamp Duty.

Many people do not realise that where a property is transferred subject to an existing mortgage that Stamp Duty will be charged on the value of the mortgage being transferred.

I’ve been left a property in a Will; do I have to pay Stamp Duty?

Most transactions will be exempt from Stamp Duty if left to someone under a Will, including any property which has a mortgage on it.

I used to own a property overseas, am I a first time buyer in the UK?

No. You can only be a first time buyer if you have never owned property anywhere in the world.

I have never owned property and I am buying my first buy to let; am I a first time buyer?

To qualify for first time buyer Stamp Duty relief the purchase property must be your main, primary residence.

Do you pay Stamp Duty in Wales?

Stamp Duty is only for purchases in England and Northern Ireland. In Wales, you will pay Land Transaction Tax (LTT).

How much is Land Transaction Tax?

You must pay LTT on all purchases in Wales over £180,000 for residential properties and £150,000 for non-residential/commercial properties.

There are base rates of LTT and higher rates for certain purchases, such as buy to lets and second homes.

The base rates or “main residential tax rates” are as follows:

From

To

LTT rate

£0

£180,000

0%

£180,001

£250,000

3.5%

£250,001

£400,000

5%

£400,001

£750,000

7.5%

£750,001

£1.5 million

10%

Over £1.5 million

12%

 

The higher rates of LTT are as follows:

From

To

LTT higher rate

£0

£180,000

3%

£180,001

£250,000

6.5%

£250,001

£400,000

8%

£400,001

£750,000

10.5%

£750,001

£1.5 million

13%

Over £1.5 million

 

15%

 

How to calculate Land Transaction Tax

Below are a few examples of how LTT is calculated.

If you purchase a new home for £300,000 which you intend to use for your primary residence, you will pay the following Stamp Duty:

  • First £180,000 at 0% - £0
  • Next £70,000 at 3.5% - £2,450
  • Remaining £50,000 at 5% - £2,500
  • Total Stamp Duty - £4,950

If you purchase a second holiday home for £300,000, you will pay higher rates of Stamp Duty as follows:

  • First £180,000 at 3% - £5,400
  • Next £70,000 at 6.5% - £4,550
  • Remaining £50,000 at 8% - £4,000
  • Total Stamp Duty - £13,950

Is there first time buyer relief for Land Transaction Tax?

Unfortunately, there is no first time buyer relief for LTT. You will have to pay LTT on any property value over £180,000 regardless of your status as a buyer.

Do you need a solicitor to help with your conveyancing?

Buying and/or selling property is a complicated process. Depending on the nature of the transaction, you will be dealing with contracts, title deeds and plans, multiple searches to uncover information about the property’s history and associated rights and burdens, surveys, leases, mortgage documents, and negotiations with parties including landlords, neighbours, developers, planning authorities, and local authorities.

It is therefore essential to consult a skilled conveyancing solicitor to ensure all documents are completed accurately and that no issues arise further down the line.

You also obtain a measure of protection by instructing a solicitor. A knowledgeable conveyancer is highly unlikely to make any errors, however, if anything does go wrong, they will have indemnity insurance to cover any loss. They will also calculate and help you arrange payment of Stamp Duty or Land Transaction Tax so you do not run into any issues with HMRC. This is not an exhaustive guide to Stamp Duty and there are other rules and exemptions which could mean that the amount of Stamp Duty you pay will be different from what you initially expect.

Why choose Bird and Co’s conveyancing solicitors?

Amongst our wide ranging legal knowledge and experience, our team of dedicated legal professionals particularly specialise in conveyancing matters, including sales, purchases, remortgages, transfer of equity, and new build conveyances.

We are members of the Law Society Conveyancing Quality Scheme Accreditation which is only awarded to firms which lead the way in legal expertise and customer service in this area.

Our approach is to make our services as accessible and convenient as possible. We are highly responsive, with a policy of providing each one of our clients a direct line and email address for their personal conveyancing lawyer. We will always update you as soon as there are any developments in your matter but if you have any questions or concerns throughout the process, you need only get in touch with us.

We are also pioneers in online conveyancing allowing you to conduct the entirety of your matter in your own time without ever needing to come to our offices (unless you want to). We are certified in Cyber Essentials which means we can safely transfer confidential legal documents online with no risk to yourself.

Bird & Co Solicitors is independently regulated by the Solicitors Regulation Authority (SRA).

Get in touch with our conveyancing solicitors today

If you would like clear, understandable advice about Stamp Duty or Land Transaction Tax, get in touch with our conveyancing solicitors by giving us a call at one of our offices in Grantham, Newark, and Lincoln, emailing enquiries@birdandco.co.uk, or by filling in our online enquiry form.

Figures correct at 16.12.2019