In the UK, paying stamp duty on property or piece of land worth over £125,000 is necessary for your first home and second, after passing the threshold of £40,000. This applies to both freehold and leasehold properties, whether you require a mortgage or not.
How much is stamp duty?
Stamp duty falls into several rate bands. The tax is calculated on the part of the property purchase price falling within each band. For example, if you were to buy a property for £275,000, you would pay 0 per cent on the first £125, 2 per cent on the next and then 5 per cent on the remaining £25,000.
Stamp duty on second homes
If you are buying an additional property, such as a second home or a buy-to-let, you must pay an additional 3 per cent in stamp duty if you have paid more than £40,000.
If you have bought a new residence but are still waiting to sell your previous one, you will still have to pay additional stamp duty as you will then own two properties. However, there are some exceptions that could make you liable for a refund…
You can request a refund for the amount above the normal Stamp Duty rates if:
- you sell your previous main residence within three years
- you claim the refund within three months of the sale of your previous main residence, or within 12 months of the filing date of your SDLT tax return, whichever comes later.
Stamp Duty relief for first-time buyers
If you are a first-time buyer, you won’t have to pay stamp duty on properties worth up to £300,000. This could save you up to £5,000 as a first-time buyer!
If your first property costs up to £500,000, you won’t have to pay stamp duty on the first £300,000, only the remaining amount. Any property above £500,000 will mean you must pay the standard rates of stamp duty. You also won’t qualify for first-time buyer’s relief.
Joint ownership and stamp duty relief
If you are married and are jointly buying a property, you must both be eligible first-time buyers. If not, you will not receive first-time buyers stamp duty relief. If you are unmarried and jointly buying, you can still get a reduction. However, this is only valid if the person named on the mortgage is a first-time buyer.
But there are some things you should note:
- Regardless of how many names are on the deed, £5,000 is still the maximum saving on a property purchase.
- If the mortgage application is under one name only, it will be based on that person’s income alone. This could affect how much your lender will lend you.
- It’s important to think about what would happen if you split up. If the property is in both names, you will both have a claim. If under a single name, one of you could be left with nothing.
When do you have to pay stamp duty?
You have 14 days to file a stamp duty land tax return and pay any that may be due. This starts from the effective date of your transaction, which is usually the date that your property purchase is completed. If you fail to return and pay within 14 days, you could face penalties.
How to pay stamp duty
Though you can do it yourself, this is something your solicitor will normally deal with. However, you are responsible for making sure it is all submitted on time. You must still apply for a return (unless you are exempt), even though you don’t need to pay stamp duty.
When is stamp duty not payable?
If you buy a property for less than £125,000, you will automatically avoid stamp duty. However, this isn’t a possibility for many homeowners. There are other circumstances where stamp duty is either unpayable or can be reduced.
- Slightly over rate band – If the price is only just within a higher band, it’s worth asking the seller or estate agent is they would accept a slightly lower price.
- Transfer of property during separation or divorce – There is nothing to pay if you transfer a portion of your home’s value to your ex-partner.
- Transfer of deeds – IF you transfer the deeds of your property to another person, whether it be a gift or in your will, they will not need to pay stamp duty on the market value of the property.
However, please note that paying stamp duty on property is necessary even if you have exchanged properties with another person. This will be based on the market value of the property.
Make moving easier with help from Betesh Middleton Law
Paying stamp duty on property that is new to you is just one of many elements to buying a new property that can be made easier with the help of a solicitor. If you are looking for a smooth process for buying your next home, get in touch with Betesh Middleton Law today.