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Background

Stamp duty dates back to around 1694 in England, more recently the system we know today that relates to a house purchase was introduced in the 1950s. Although it remains common to refer to this tax as Stamp Duty the name has changed throughout the UK.

Stamp Duty is a tax, simple as that. It is just another way for the government to collect money when a property changes hands.

• England/NI - Stamp Duty Land Tax (SDLT)
• Wales - Land Transaction Tax (LTT)
• Scotland - Land and Buildings Transaction Tax (LBTT)

What and when you pay Stamp Duty depends not only on where in the country you are buying property, additional factors such as value, the reason the property is being purchased, and whether it is the first property being purchased or an additional one amongst others.

We will look into all of the potential situations in this guide.

What are the stamp duty rates?

Given the complexity of the calculations from region to region I have created a calculator for Stamp Duty, you can find it here.

I recommend going to that and entering in some property prices, this will give you a full breakdown of the bands used in each area of the UK depending on the reasons for making a purchase. The calculator provides a full breakdown of the bands and amounts paid across each to provide a total.

Paying no stamp duty

For each UK region, there are standard rates, but the difference is not significant overall, there is a tendency to try and support those purchasing at the lower end of the market by offering no liability up to a certain value and charging more as the purchase price increases. Note that I said purchase price. That is what you pay stamp duty on, not the value of the property.

In each region, you will pay no Stamp Duty for purchases up to the following amounts. This applies when purchasing a 1st UK property or replacing the only property owned with another.

• England/NI - £250,000
• Wales - £180,000
• Scotland - £145,000

First-time buyers

There are additional benefits for first-time buyers in all but Wales.

A 1st-time buyer is classed simply as the first property a purchaser has ever owned. If someone owns a property that was gifted to them or purchased without mortgage support then they are not a first-time buyer. This also includes ownership of property outside of the UK.

It is important to note that there is an additional caveat to being a first-time buyer. That is all purchasers must meet the definition or it cannot be applied for. If a couple decide to buy their first home together but one already owns a property then the standard rates apply. There is no partial first-time buyer allowance for the purchaser that has never owned a property. It may even be the case that a higher rate of duty is payable, more on that later.

The threshold where no duty is paid increases beyond the standard rates above where no duty is paid.

• England/NI - £425,000 up to £625,000 in more expensive locations such as London
• Wales - N/A
• Scotland - £175,000

Why is there no first-time buyer benefit in Wales? Property prices in Wales suggest that most first-time buyers will be captured in the current nil band up to £180,000.

Second or subsequent homes

Since 2016 homeowners now have to pay considerably more Stamp Duty when purchasing an additional property.

Currently, anyone purchasing a second or subsequent property in all regions of the UK will pay an additional 3% on each band. For example, if purchasing a property for £500,000 the duty payable will be:

There is one benefit across all regions which is that any property purchased under £40,000 will not incur any duty whether it is a first or subsequent property owned. Good luck finding a property at that price though!

Moving home

For those that are simply moving home, standard Stam Duty rates are payable. Unfortunately though, if there is no simultaneous exchange of properties, that is you are deemed to own two properties at the same time, even for a short period of time, the additional rate of Stamp Duty will need to be paid.

This can be avoided for those who are handing over their existing property to a purchaser and taking possession of their new property on the same day. Or handing over their existing property to a purchaser before taking possession of a new property.

In any event, the difference between the standard and additional rates can be claimed back as soon as the existing property is transferred to a new owner.

In some cases, it may be that a new home is purchased long before the existing one is sold. Perhaps the new property needs work and that will take 6-12 months to complete. The existing home is retained until work in the new property is completed and then it will be sold. In that case, there is a period of up to 3 years where the difference between standard and additional rates can be claimed back.

Non-resident purchasers

In England and Northern Ireland only, non-resident purchasers with have to pay an additional 2% on top of the existing standard and additional rates. This was introduced in the 2020 budget.

This makes it more unappealing to international buyers as the top rate of Stamp Duty is 17% when purchasing a second or subsequent property as there is already an additional 3% surcharge on standard rates and now a further 2% is being added. That was the intention. It was hoped that this would help cool the London property market where investment from international clients has been high for some time. The Government claimed that the additional duty raised would be put to use providing homes for the homeless.

An example of where this impacts non-resident purchasers looking at a property purchase of £3m in London vs the cost of a UK resident. Note that non-residents do not qualify for first-time buyer rates even if they do fit the criteria.

To be clear on who is considered non-resident.

This is anyone who has spent less than 183 in the UK during the 12 months leading up to the purchase.

This also applies to anyone who is not considered a resident for tax purposes. So British ex-pats working/living overseas, not paying tax in the UK will also pay the additional 2%.

It is possible in some cases where a purchaser becomes a UK resident in the 12 months following purchase to claim back the 2% non-resident surcharge. The claim must be made within 2 years of purchase.

When do you pay stamp duty?

Normally this is handled by the solicitor acting on behalf of the purchaser although the purchaser can do it themselves.

Payment is due within 14 days of the effective date of the transaction. That is normally the date when the transfer of the property to the purchaser has been completed.

If not paid on time, penalties will be applied and interest will also be charged until paid.

When don't you pay stamp duty?

There are some events which can take place that does not require payment of stamp duty. This normally does not involve a property being purchased, instead, it is transferred. For example:

1. Property ownership is transferred from a husband to a wife as part of a divorce settlement.
2. Being left a property in a will is unlikely to result in any liability.
3. Gifting a property to someone where the property does not have any mortgage outstanding.

Of course, there could be some edge cases even in the examples above where some liability could exist, it all depends on how the property was transferred, and under what conditions may trigger a liability.

Stamp duty for Buy To Let (BTL)

Duty for those purchasing investment property is no different to the rules above. Property is property regardless of the reason for buying it when it comes to stamp duty.

In the rare event that someone is truly purchasing their first-ever property not to live in but as a BTL to rent, standard rates apply. First-time buyer rates are not applicable here. To qualify as a first-time buyer the property being purchased must be lived in by the purchaser, not rented out.

Every other BTL property purchased is treated as an additional property and the additional rate of stamp duty is used.

Summary

Lots to consider when it comes to Stamp Duty, a good calculator will ask the right questions and provide the right answer but it can't factor in all of the additional considerations discussed above. It is important to consider what the amount of stamp duty to be paid is going to be. Depending on the purchase price it can be substantial and needs to be available before purchasing given the payment is due so soon after completion.