Stamp duty is a tax applied to certain land and property purchases. Otherwise known as 'stamp duty land tax', it's generally applicable if you're buying a house or other residence worth £125,000 or more.
The amount payable is tiered like with income tax -as opposed to being at a set proportional rate. This means that the amount you have to pay can vary greatly, depending on what bracket your property's value falls into.
When and how do I pay?
Assuming that your property is over £125,000, you'll normally have to pay with 30 days of the 'effective' date – the effective date usually being the date upon which ownership of the house is completed. However, if you pay for the property before completion, or if you move in earlier, the countdown for the stamp duty payment starts from that date.
If you're using a conveyancer (someone taking care of the legal aspects), they will normally calculate and take care of the payment on your behalf. However it is your responsibility to make sure that the right sum is paid. All payments are made directly to HMRC, and you will find further instruction on how to do so on their official website.
Other than in instances where the property is valued at less than £125,000, there are few exemptions from stamp duty. Even if you swap properties with another party, with no money exchanging hands, you are still obligated to pay stamp duty based on the current market price of the property. And there is no bias to buying a property outright or via a mortgage – the rules are the same.
On exemption which does apply, is in the case of divorce or separation. If the property is being transferred by one party to the other no stamp duty is applicable (even with money exchanging hands). However if the property is being sold to an outside party, stamp duty will be applicable in the normal way.
Stamp Duty Rates of Tax
Currently the structure for stamp duty tax is as follows:
Stamp Duty Tax Rate
£0 - £125,000
£125,001 - £250,000
£250,001 - £925,000
£925,001 - £1,500,000
The way that the rates are tiered means that you pay the rate of tax proportionately as the valuation rises through the brackets, and you're not paying as much as it seems at first glance.
In practice this means that if the property you buy is £275,000, you'll pay:
- 0% for the first £125,000,
- then 2% of £100,001 (for the £125,001 - £250,000),
- then 5% for the £25,000 that falls into the £250,001 - £925,000 bracket