What's Stamp Duty?

Stamp Duty: Everything You Need to Know

We all have to deal with the burden of taxes, but one tax, in particular, stands out: stamp duty when buying a home. This blog post will teach you everything you need to know about this tax & how it affects your purchase process.
What Is Stamp Duty?

You may be asking yourself,

“What is stamp duty?” It’s a question that many people ask when considering an investment property. The answer, however, can be complex and may depend on your situation. You need to know when it comes time to buy a property in the UK. One of the most important things to consider is Stamp Duty1.

It might not be the first thing you think about when buying your new home but understanding this tax system will help you make better decisions during negotiations ad close on your dream home for less money.

Simply put,

It is a tax that must be paid when buying a property or land in England and Wales. There are various types of properties or land exempt from paying this type of tax, including those used for agricultural purposes, residential property purchases excluding buy-to-let, any registered charities who HMRC has granted an exemption.

It is not necessary to pay Stamp Duty when:

  • The vendor sells their own home within 18 months of buying it. If they buy and sell again in less than six years, there is no Stamp Duty to pay on that second sale.
  • The vendor sells their old house and buys another, they don’t have to pay Stamp Duty on the first £125,000 of any purchase price but not for purchasing an additional residential property
Stamp Duty Relief for First-Time Buyers

Stamp Duty Relief for First-Time Buyers

The stamp duty relief for first-time buyers is a welcome one. Stamp Duty can be expensive, hitting highs of £15,000 in some areas, which would make buying your first home an impossibility or prohibitively costly. The new Finance Act 2016 introduced the following changes:

Let’s have a look

  • To qualify for this relief, you must have been living in the UK continuously for at least three years before purchase and not be related to anyone who already owns property in the UK through family members like parents/children/siblings etc.
  • You can’t buy more than one residential property from April 2017 onwards unless it’s being purchased jointly with another person/persons by way of marriage or civil partnership
  • You need to be a first-time buyer, and the property you’re buying has got to cost less than £500,000

The relief is available if you purchase your primary residence or second home but not for investment property like buy-to-let.

Stamp Duty for Non-Residents

Stamp Duty for Non-Residents

Stamp duty for non-residents is a tax on the purchase of British property by those not residents in Britain. It has been introduced to discourage overseas buyers from using London as an investment destination and pushing up prices, which many locals can’t afford.

You see:

The rate varies depending on where the buyer lives: they will pay either 0% for EU citizens or 15%, 12%, and 0%. Citizens of Iceland, Liechtenstein, Norway, and Switzerland pay no UK stamp duty regardless of how much their home costs but may pay other taxes.

Paying Higher Rates of Stamp Duty

If a person wishes to sell their house to purchase another one, this is typically referred to as “property flipping”.

Let me explain,

Suppose you are considering property flipping and have already bought your new home before selling your old one. In that case, you will be liable for higher rates of Stamp Duty Tax if you buy the second property after November 22, 2017.

The value of both homes combined is over £40,000 more than what they were worth on March 21, 2015 (the date when stamp duty was last increased). The sales prices exceed £500k by December 2020. This limit increases with inflation every year up until 2022, at which point it becomes unlimited. In 2020, the limit will be £750k.

Why is this so?

Any time a house is sold in England and Wales, whether it’s your primary residence or not, you’re liable for Stamp Duty Land Tax (SDLT). As of April 2016, SDLT was increased to 12% on purchases over £125,000. For these purposes, there are two types: basic stamp duty (i.e., 0-£125k) and higher rates of stamp duty (12%).

Higher rates apply when either one of the following applies at the sale date: The purchase price exceeds £500,000; or if that wasn’t enough reason to pay more tax already! You buy an additional property after November 22, and you’ll have to pay the higher rates.

But how much is it exactly? 

SDLT purchases of £500k or more will be 12% in 2020 and 2021 (£66,000). But don’t panic if your home purchase falls below this limit there are exemptions available for first-time property buyers (up to £300k), properties under new builds where contracts were entered after November 23, 2017 (£125k), as well as second homes and buy-to-let properties that aren’t rented out from April 2019 onwards (£150k).

And what about those who bought before November 22, 2018?

If they sell within three years of buying their property, any gain made over the SDLT limit will be subject to the new rules.

Stamp Duty Exemption

Stamp Duty Exemption

A final thing we should mention is exemptions of stamp duty2. When looking at exemptions, the following are worth knowing about:

  • Those who work away from their family home (but please note this only applies where they spend less than 183 days per tax year)
  • Carers and nurses who qualify under health professional categories
  • Teachers in academies schools, special schools, or maintained nursery school

Now:

People who work away from their family home are often exempt from paying stamp duty in the same way that carers and nurses qualify for exemptions. This is because those working or caring people may spend less than 183 days per tax year at their family homes, which means they do not need to pay any extra on second properties.

Teachers are also exempt under these categories of occupation. Teachers in academies schools, special schools, or maintained nursery schools qualify as well if you’re interested.

There are also exemptions for people who live in some rural regions, including some parts of Scotland or Wales, and do not need their own house but want to keep agricultural animals or produce food. You might be eligible for this exemption if your income is below £40,000 outside London and below £30,000 within it each year or less than £2000 if living there. These rates can vary depending on where you live.

Here’s more:

You’re also exempted if you’re left the property in a will, no money or other form of payment is exchanged for land or property transfer, the property is transferred due to a divorce or dissolution of a civil partnership, you’re purchasing a property in England or Northern Ireland and don’t own any others for under £500,000 between July 8, 2020, and June 30, 2021, you’re a first-time property buyer and purchasing for £500,000 or less between July 8, 2020, and June 30, 2021, lastly, you’re a first-time property buyer and buying for £300,000 or less after June 30, 2021.

Always check with an expert first before buying a home, especially if you think you may qualify for these exemptions to reduce your total stamp duty bill significantly!

Common Questions

What is the Stamp Duty Rates for First Time Buyers?

Can I Add Stamp Duty to My Mortgage?

Do You Have to Pay Stamp Duty Every Time You Move?

Can You Pay Stamp Duty in Instalments?

In Conclusion

There are many things to consider when buying property in the UK, and one of those is stamp duty. It’s not something you can ignore or avoid as it’s one of the most expensive taxes in the country. That said, there are ways that you can mitigate its impact on your purchase by preparing ahead with information.

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