What is Stamp Duty and when do you have to pay it?

Please note: the stamp duty holiday has now ended.

Stamp duty is due when land or property being sold is worth over a certain amount. There are thresholds that are subject to change depending on government policy and the amounts payable depend on the value of the property – the more expensive it is, the more stamp duty you’ll pay. 

You can use an online stamp duty calculator to quickly work out how much you would need to pay. 

Stamp duty is a lump sum tax you pay when you buy a property or land that is valued over a certain amount. The amount of 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 above the tax threshold according to which band it was in.

Under the current system you only get taxed the relevant percentage on the amount within that band in the same way as income tax is calculated

For example, under the old system, the rate of stamp duty for residential properties 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 tax 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 it is only £25,000 over the threshold, meaning you would only owe tax on £25,000 rather than the full amount.

This progressive system also applies to Scotland's land and buildings transaction tax and Wales’s land transaction tax, which are the equivalent of stamp duty land tax in England and Northern Ireland. The only differences are the thresholds and percentages you are taxed at.

The threshold is the property value above which you start paying stamp duty. Unless you are a first time buyer, it’s £125,000 in England and Northern Ireland and £145,000 in Scotland. In Wales it’s £180,000.

Due to the coronavirus pandemic, the stamp duty threshold was temporarily increased for residential property purchases in July 2020.

In England and Northern Ireland, from 8 July 2020 to 30 June 2021 stamp duty was only payable on properties costing more than £500,000 and from 1 July 2021 to 30 September 2021 more than £250,000. The threshold returned to £125,000 on 1 October 2021. 

In Scotland the threshold was raised to £250,000 on 15 July 2020 and returned to £145,000 on 31 March 2021 while in Wales it was raised to £250,000 from 27 July 2020 until 30 June 2021.

First time buyers in England and Northern Ireland get relief 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 at 5% on the remaining £200,000.

You, and anyone else you’re buying a property with, must be first-time buyers to benefit from the relief. The stamp duty exemption does not apply if a first time buyer purchases a home worth more than £500,000. 

First-time buyers in Scotland are also exempt up to £175,000 but there is no first time buyers’ relief in Wales.

The amount of stamp duty you pay depends on whether the property is residential, whether you’re a first time buyer and whether it’s an additional property. 

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 price band. 

If you are buying an additional property, which means you’ll own more than one, the rate of stamp duty on it is higher. 

As stamp duty uses a progressive taxation system, the percentage owed is only on the portion of the property’s value above the threshold – not on the entire value of the property – and different percentages apply to the portions of the value within different bands. 

For example, on a property worth £150,000, you would pay the 2% stamp duty owed on £25,000 (the amount over £125,000), meaning you would owe £500. 

If you are buying an additional property and it's worth £40,000 or more the rate of stamp duty will be higher. 

The rates below are for residential property across the four nations. The first figures are for main home and the second for additional properties.

Scotland's version of stamp suty, land and building transaction tax (LBTT) uses a progressive taxation system and has an additional tax for additional property. However, the thresholds for taxation are slightly different.

Wales’s version of stamp duty is the land transaction tax (LTT). As in Scotland, there are higher rates for additional properties of an extra 4%.

If you owe stamp duty on the property or land you are buying in the UK, you will have to pay it within 14 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 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.

Technically, this 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 leave you with more mortgage to pay off.

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.

You can’t actually pay for stamp duty with a personal credit card but using one to borrow elsewhere or taking out a loan could mean you’ll have more cash left once you’ve paid for stamp duty and you can usually borrow at a flexible and relatively low-cost rate. 

Nonetheless, if you have already taken out a mortgage, you should try to avoid taking on additional debt if possible.

It's important to always plan for stamp duty and all the other 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. Here are some ways to plan ahead for extra costs:

You can use an SDLT calculator to work out how much stamp duty you will have to pay, based on your expected purchase price. This will allow you to make sure you have the required amount ahead of your property purchase.

For example, if the home you are buying is £250,000 and mortgage lenders say you need a cash deposit of £50,000 to be approved, tell yourself 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’ve planned it well could leave you with a little extra to help pay for new furniture and moving costs.

Plan early, start adding to your savings as soon as possible and stick to the plan. It's always good to give yourself time to save more than you think you’ll need as there are likely to be a few unexpected costs.