A Guide to Stamp Duty

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Stamp Duty. These are two words that are bandied around when purchasing a new property, but many people – particularly first-time buyers - don’t really have a clue what they mean. Hopefully our guide will help.

Stamp Duty – what is it?               

Stamp duty is a tax that everyone purchasing a property over the value of £125,000 has to pay. The amount you will have to pay is based on a percentage (see the table below), and ranges from 2-12% of the property’s value.

It’s payable within 30 days of the ‘effective date’, which is the day of completion. There are, however, a few cases where stamp duty needs to be paid earlier: if you pay for the property in advance or you move in before the completion date.

Changes to stamp duty regulations

Before the changes stamp duty was seen as a stealth tax, as a difference of just £1 could push a homeowner into a new bracket and hence require them to fork out more, e.g. a property valued at £250,000 would be taxed at 1%, whilst a property valued at £250,001 would be taxed at 3% - a difference of £5000.

Under new regulations announced in December 2014, new rates of stamp duty will only apply to the amount that is over the threshold. So, in the example above, the 5% rate will be charged against the additional £1. This is seen as a fairer system for all.

The new stamp duty rates are:

  • Up to £125,000: 0%
  • £125,001 to £250,000: 2%
  • £250,001 to £925,000: 5%
  • £925,001 to £1.5m: 10%
  • Above £1.5m: 12%

According to Government reports, the average homeowner purchasing a family home (£275,000) will now pay £4,500 less in stamp duty. Under the old rules, the tax would have equated to £8,250. Now, the purchaser will have to fork out £3,750.

Paying stamp duty as part of your mortgage

If you can avoid it, it’s best to pay your stamp duty in one go rather than adding it to your mortgage. But some people won’t have the disposable cash to do so, so here’s an alternative. Simply borrow more money when taking out your mortgage.

This will give you the opportunity to spread the cost of your stamp duty over a long time period, making it more affordable from a monthly perspective. But ultimately you will have to pay more back when you factor in interest rates.

Where stamp duty isn’t applicable

There are a couple of cases where you won’t have to pay stamp duty:

  • If the property you are purchasing is below £125,000
  • If the deeds are transferred to you (e.g. in a will) then you won’t have to pay stamp duty

Stamp duty calculator

For more information about stamp duty, and to see how much you will have to pay, head to the HMRC website and enter your information in the government’s official stamp duty calculator.

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