Stamp Duty – Everything you need to know
What is stamp duty?
Stamp duty land tax (or land and buildings transaction tax in Scotland) is a lump-sum tax that anyone buying a property or land costing more than a set amount has to pay. The rate you’ll pay the tax at varies based on the price of the property and the type (we’ll focus on residential buildings, rather than commercial).
Stamp duty was reformed in 2014 – the slab system (where you’d pay a single rate on the ENTIRE property price) was swept away, and in its place we now have a more progressive system.
How much will you pay?
Under the current system – which applies to England & Northern Ireland – you’ll only pay the rate for the proportion of the property that’s at that rate. It’s quite complex, so here’s an example to better illustrate how it works:
Let’s assume you’re buying a property for £500,000.
You pay nothing below £125,000, which is £0.
You pay 2% on between £125,001 and £250,000, which is £2,500.
You pay 5% on the value of the property between £250,001 and £500,000, which is £12,500.
So in total this means you’ll pay £15,000 (£0 + £2,500 + £12,500).
How much stamp duty does a first-time buyer pay?
However, the system’s different if you’re a first-time buyer buying a property in England or Northern Ireland worth up to £500,000. You’ll pay zero stamp duty on the first £300,000 of any home costing up to £500,000 (and only 5% on any proportion between £300k and £500k). This means the new stamp duty rates for first-time buyers are:
Up to £300,000 purchase price: 0% stamp duty
£300,001 to £500,000: 5% (on that portion of the purchase price only)
Using the example above, for a first-time buyer purchasing a property worth £500,000, the calculations will be slightly different:
You pay nothing below £300,000, which is £0.
You pay 5% on the value of the property between £300,001 and £500,000, which is £10,000.
So in total this means you’ll pay £10,000 (£0 + £10,000).