Stamp duty, or “stamp tax,” refers to a government’s taxation on transactions of certain kinds1. It may include the transfer of property in land and buildings, amongst other things. It’s one of the most confusing and tedious tax responsibilities for any home buyer. Not only do you have to do the stamp duty calculation, but you also need to factor in whether it is a purchase or a sale.
Nowadays, it usually takes a percentage of the purchase price for vehicles and real estate purchases, though this varies by country. In England and Wales, you’ll need to pay stamp duty on top-priced items like properties over £125k and £250k if a second property.
It isn’t a significant problem for buyers on lower budgets, but if you’re looking at spending more than £250k, it’s worth knowing that stamp duty rates can go up to 12%. There are also specific properties that have fixed rates of tax. These include second homes bought by residents or non-residents and agricultural land. In Scotland, where there is no distinction between residential and commercial property, all transactions attract an additional 0.25% in stamp duty.
First-Time Buyer Stamp Duty Rates
In England and Northern Ireland, first-time buyers who spend up to £500,000 on a property do not pay stamp duty on the first £300,000 and pay 5% on balance between £300,000 and £500,000.
To qualify for the first-time buyer stamp duty relief, the homebuyer must be living in any property for at least four years. The income must not exceed £50,000 per annum, which doesn’t include other sources of income like rent or investments. Also, the law must be qualified (i.e., married), so if you’re unmarried, then there will be no exemption for you.
Home Mover Stamp Duty Rates
Home movers are subject to a lower stamp duty rate than second-home buyers. The government wants mortgages and plans to live in their new homes for more than three years to buy them, boosting economic growth. Plus, since they will live there longer, they’re less likely to have problems paying off their mortgage.
The maximum amount of transactions that qualify for this lower rate was increased from two properties per person/shared ownership property over four consecutive financial years, but only if both properties were bought within one year before or after each other. The rules about buying-to-let property still apply. You must occupy the property yourself at some point during your ownership or buy it as a gift for someone who will occupy the property.
Buy-to-Let Stamp Duty Rates
Like a second home and buy-to-let property, the additional property will be subject to a 3% Stamp Duty surcharge on top of the current rates for each band. This higher rate applies to properties purchased for £40,000 or more. Caravans, mobile homes, and houseboats are exempt. If you’re buying a new primary residence but don’t sell your old one before the deadline, you’ll have to pay the higher Stamp Duty rates because you’ll have two homes.
If you meet the following criteria, you will be eligible for a refund for the sum that exceeds the regular Stamp Duty rates:
- You sell your former primary residence within three years and demand the refund within three months of the sale or 12 months of the filing date of your self-assessment tax return, whichever comes first.
Paying Stamp Duty
Usually, your solicitor will deal with the Stamp Duty return and any payment due for you, although you can do it yourself. Within 30 days of completing the property purchase, you must file a Stamp Duty Land Tax return and pay any outstanding amounts. HMRC2 can charge you penalties and interest if you do not file a return and pay the tax within 30 days. And if the cost of your new home is less than £125,000, you must still file a return unless exempt, even if no Stamp Duty is due.
How Does the Stamp Duty Relief Work?
The government’s temporary reduced Stamp Duty rates are in effect from July 8, 2020, to June 30, 2021. They’ve raised the Stamp Duty rate to £500,000, which means that if you buy a property in England or Northern Ireland for £500,000 or less during that period, you won’t have to pay any Stamp Duty. First-time buyers, as well as second homes and investment properties, are eligible for immediate relief. First-time buyers and second homes and investment properties are qualified for the temporary relief; however, the 3% surcharge must still be charged.
Can You Claim Back Stamp Duty?
You will be paid a 3% surcharge on top of the normal Stamp Duty rate when you buy a second home or the next home before selling your current one. However, if you sell your first home within three years, you can get a refund for the 3% surcharge. Within three months of selling your first home, you must file a claim.
Can I Reduce Stamp Duty?
Since stamp duty is only charged on land purchases, removable fixtures, and fittings, also known as chattels, including freestanding wardrobes, sofas, refrigerators, carpets, and curtains, are not subject to SDLT and therefore can be deducted from the total property price. Anything that is attached to the building is legally a part of it and is subject to SDLT.
What Were the Recent Changes to Stamp Duty in England and Northern Ireland?
Before 2014, there was a slab structure, with buyers paying a premium dependent on the total cost of the land. Only the portion of a property’s price that falls under each band is subject to the new fees. Non-residential property and mixed-use land have different SDLT rates and thresholds.
If you’re not sure of which SDLT rates apply to your property purchase, please speak with an accountant or tax advisor for more information and assistance on calculating the rates that will apply to your situation. Remember, other charges are associated with buying a house, such as conveyancing fees and solicitor’s costs, so make sure you factor these into the equation before deciding if it is worth undertaking any investment property. The important thing is to do some research beforehand and determine how much stamp duty may cost when investing in property.