Stamp Duty explained

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What is Stamp Duty?

Stamp Duty - or Stamp Duty Land Tax (SDLT) to give it its full name - is a levy paid to HM Revenue & Customs on land, lease and property transactions over a certain price in the UK.

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How much do you have to pay?

Exactly how much SDLT you will have to pay depends on the purchase price and whether it is a residential or non-residential transaction.

For the purpose of this guide we’ll be talking about residential Stamp Duty.

Residential Stamp Duty is calculated at tiered rates depending on the portion of the purchase price that falls into a particular band.

The table below details the band and rate thresholds.

Purchase price bands	Stamp Duty rate
Up to £125,000	0%
£125,001 - £250,000	2%
£250,001 - £925,000	5%
£925,001 - £1,500,000	10%
£1,500,001 +	12%

So for example if you were buying a property worth £200,000, you would have nothing to pay on the first £125,000 and then 2% to pay on the remaining £75,000 that dips into the next band. This would give you a total tax bill of £1,500.

For a more expensive property the calculation gets a bit more elongated.

For example if you were purchasing a property worth £500,000, you would have nothing to pay on the first £125,000, 2% to pay on the next £125,000 and 5% to pay on the remaining £250,000. This would give you a total tax bill of £15,000.

You can use HMRC’s online Stamp Duty calculator to work out what you will have to pay.

When do you have to pay it?

You need to submit a SDLT Transaction Return and have to pay any Stamp Duty you owe within 30 days of completing a property, lease or land transaction.

If you miss this deadline, you will face a fine and be charged interest on the overdue payment.

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How do you pay it?

It’s the responsibility of the purchaser to fill in a Land Transaction Return and if liable make a SDLT payment. But in practice your solicitor or conveyancer normally takes care of the admin on your behalf.

If you do end up going it alone for one reason or another, the easiest way to go about filing the return and paying what you owe is by doing it online.

Check out the HMRC website for more details.

Can Stamp Duty be added to a mortgage?

Some mortgage providers allow you to add Stamp Duty and other fees to your mortgage.

However, if you can avoid it, it’s better to pay Stamp Duty upfront. That’s because it will cost you more overall as the amount you add accrues interest at the same rate as the rest of your borrowing for the term of your deal.

For example on a £300,000 property, borrowing £180,000 plus the £5,000 needed for the Stamp Duty bill over 25 years at a rate of 5% means you end up paying £4,000 more than you would by paying for it upfront.

However, some people may find they have to add Stamp Duty to their mortgage, as they just don't have the spare cash.

If that’s the case you will need to borrow enough to cover purchasing your home and paying the tax bill.

So if you were borrowing £180,000 to purchase a house costing £300,000, you would need to request to borrow £185,000 in total to cover the cost of Stamp Duty as well.

It's worth bearing in mind that adding Stamp Duty (and any other fees) to the amount you borrow will not only impact the amount you pay back but it will also change your loan-to-value ratio - this is a percentage which expresses how much you are borrowing as a percentage of the property's value. In the example above it moves from 60% to 61.3% LTV.

Lower LTVs attract the best mortgage rates.

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Can you avoid paying Stamp Duty?

Unless you buy a property or piece of land that costs £125,000 or less you most likely will have to pay Stamp Duty.

However, there are some situations where you may be able to get relief on how much you pay.

This might occur if you are purchasing a Right to Buy property or buying multiple properties at the same time.

Read How to Beat Stamp Duty for more.

Is Stamp Duty the same across the UK?

Currently the same SDLT system applies to those in England, Wales, Scotland and Northern Ireland.

But from 1st April 2015 Scotland will replace SDLT with its own Land and Buildings Transaction Tax (LBTT).

The LBTT will work in the same way as the current UK-wide system, however the money will be collected by Revenue Scotland and rates and bands are likely to differ.

The Scottish Government has proposed the following rates and bands in the 2015-2016 Draft Budget.