When buying a home or land, there are several costs that are likely to arise. Stamp Duty Land Tax (or Land and Buildings Transaction Tax in Scotland) is one of the larger fees associated with buying property.
Stamp duty is due when the land or property is worth over a certain amount (the thresholds are subject to change depending on government policy), and the amount can vary depending on the value of the home (the more expensive it is, the more stamp duty you owe) and the type of property it is. You can use an online stamp duty calculator to quickly work out how much you would need to pay.
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In this guide:
- What is stamp duty?
- Has stamp duty been abolished for first time buyers?
- How much stamp duty will I need to pay?
- Scotland Land and Building Transaction Tax
- When do I pay stamp duty?
- Can I pay for stamp duty with my mortgage?
- Can I pay for stamp duty with a credit card or loan?
- How to plan for stamp duty and other fees
What is stamp duty?
Stamp duty is a lump sum tax that is owed when purchasing a property or land that is valued over a certain amount.
The cost of the stamp duty will depend on the cost of the property and the type of property you are buying.
Before 2014, stamp duty had a 'slab' system of taxation, which meant you had to pay a percentage of the entire property price if it was within the taxable amount.
Currently, the 'UK Stamp Duty Land Tax' uses a progressive taxation method, meaning you only get taxed on the amount that is above the threshold.
For example, under the old system, the rate of stamp duty was 1% on property or land valued between £125,000 and £250,000. So if you purchased a home worth £150,000, you would have owed 1% tax on the entire value of the home, meaning you would pay £1,500.
However, under the current progressive taxation system, using the same example, you would owe stamp duty only on the amount above the £125,000. In this case, if the home you are buying is £150,000, then it is only £25,000 over the threshold, meaning you would only owe tax on £25,000, rather than the full amount.
The current progressive system of taxation also applies to Scotland's Land and Buildings Transaction Tax, which is essentially the same as the rest of the UK's Stamp Duty Land Tax. The only distinguishable difference is the threshold for taxation.
Has stamp duty been abolished for first time buyers?
The 2017 autumn Budget abolished stamp duty for most first time buyers.
As of 22 November 2017, a first time buyer does not need to pay stamp duty on the first £300,000 of a home.
First time buyers will be exempt from stamp duty on the first £300,000 for homes up to £500,000 in value, but will pay stamp duty at the normal rate for the remaining sum.
For example, if a first time buyer bought a home worth £500,000, they would still be liable to pay stamp duty on the remaining £200,000.
The stamp duty exemption does not apply if first time buyer purchases a home worth more than £500,000.
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How much stamp duty will I need to pay?
The main rule with Stamp Duty is that the more you pay for a property, the higher your tax rate will be. You pay a percentage of the cost, but the percentage figures increase after each set of thresholds.
If you are buying additional properties, then the rate of stamp duty will be higher on it. Stamp duty uses a progressive taxation system, so the percentage owed is only the portion of the property value above the threshold — not on the entire value of the property.
The rates of stamp duty in the UK (excluding Scotland) in 2017 |
|
|---|---|
| Property value | Stamp duty rate |
| Up to £125,000 | 0% |
| £125,000.01 to £250,000 | 2% |
| £250,000.01 to £925,000 | 5% |
| £925,000.01 to £1,500,000 | 10% |
| over £1,500,000 | 12% |
All rates apply on property or land purchases and are subject only to the amount above the threshold. For example, on a property worth £150,000, you would pay the 2% Stamp Duty owed on £25,000 (the amount over the £125,000), meaning you would owe £500.
If you are buying an additional property and it's worth over £40,000, then the rate of stamp duty owed will be higher.
The rates of stamp duty in the UK (excluding Scotland) in 2017 for additional properties |
|
|---|---|
| Property value | Stamp duty rate |
| Up to £40,000 | 0% |
| £40,000.01 to £125,000 | 3% |
| £125,000.01 to £250,000 | 5% |
| £250,000.01 to £925,000 | 8% |
| £925,000.01 to £1,500,000 | 13% |
| over £1,500,000 | 15% |
Scotland Land and Building Transaction Tax
Similar to the rest of the UK, Scotland's version of stamp duty, the Land and Building Transaction Tax uses a progressive taxation system and has an additional tax for additional property. However, the thresholds for taxation are slightly different.
The rates of Land and Building Transaction Tax in Scotland for 2017 |
|
|---|---|
| Property value | Stamp duty rate |
| Up to £145,000 | 0% |
| £145,000.01 to £250,000 | 2% |
| £250,000.01 to £325,000 | 5% |
| £325,000.01 to £750,000 | 10% |
| over £750,000 | 12% |
The rates of Land and Building Transaction Tax in Scotland for additional properties in 2017 |
|
|---|---|
| Property value | Stamp duty rate |
| Up to £145,000 | 3% |
| £145,000.01 to £250,000 | 5% |
| £250,000.01 to £325,000 | 8% |
| £325,000.01 to £750,000 | 13% |
| over £750,000 | 15% |
When do I pay stamp duty?
If you owe stamp duty on the property or land you are buying in the UK, then you will have to pay it within 30 days of the completion date.
If you fail to do so you could be hit with penalty fees and interest. But, in reality, your solicitor will be guiding you through the process and ensuring that your stamp duty is transferred and paid well before the deadline.
It is still your legal responsibility to pay the stamp duty owed in full and on time, so make sure your solicitor is on top of it.
If you are doing it yourself, then here's what you need to do:
- For stamp duty (excludes Scotland), you can transfer the money from your bank account directly to HMRC's, just as you would do if you were transferring money to a friend's bank account.
- You'll need your 11-character Unique Transaction Reference Number (UTRN) as a reference. You’ll find this on your stamp duty papers or on your electronic SDLT5 certificate. You can also make the payment online but there is a fee for credit cards.
- For Land and Buildings Transaction Tax (Scotland only), you can transfer money from your bank account to Revenue Scotland.
- You will need your 9-character transaction reference beginning with 'RS', which you will get after completing an online return on the Revenue Scotland website. You can also pay by cheque.
Can I pay for stamp duty with my mortgage?
Technically, it isn't possible — but there is a way to use your mortgage to leverage more of your deposit money to help pay the Stamp Duty.
However, it is best to avoid even considering paying for your stamp duty with your mortgage, as the cost and length of borrowing will add unnecessary weight to your debt.
If the property you are buying is worth, say, £200,000 and you had £30,000 as a deposit, you could attempt to borrow slightly more so that you could use more of your deposit to pay for the stamp duty.
But this would, in theory, leave you with more mortgage to pay off.
Can I pay for stamp duty with a credit card or loan?
It's best to avoid borrowing money to pay your Stamp Duty, but it is possible to use borrowing to free up cash you have saved.
Having said that, you can use a credit card to pay for your stamp duty if you decide to pay it online on the HMRC website (excludes Scotland). However, there are fees when paying with a credit card, and HMRC has many restrictions on it.
A credit card or loan could help free up your cash, as you can usually borrow at a flexible and relatively low-cost rate. By using a credit card to borrow elsewhere, you could try to use more of your cash to pay the stamp duty.
Nonetheless, if you are taking out a mortgage, you should try to avoid taking out additional loans or credit.
How to plan for stamp duty and other fees
It's important to always plan for stamp duty and all of the others fees associated with buying property. From the very beginning of the home buying process, you should factor in the additional costs when calculating your budget.
For example, if the home you are buying is £250,000, and mortgage lenders say you need a cash deposit of £50,000 for approval, then tell yourself that you actually need around £60,000. That extra £10,000 could help pay for all the mortgage fees, as well as stamp duty, and if you have planned it correctly, could leave you with a little extra to help pay for new furniture and moving costs.
It's always good to give yourself extra room, as there are always a few unexpected costs. Plan early and start adding to your savings as soon as possible, and stick to the plan.
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