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How does stamp duty work?

Stamp Duty calculator

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 it works in England & Northern Ireland
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 £125,000 and £250,000, which is £2,500.
You pay 5% on the value of the property above £250,000 and £500,000, which is £12,500.
So in total this means you'll pay £15,000 (£0 + £2,500 + £12,500).

How it works for first-time buyers buying a property worth up to £500,000
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
£300,000.01 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 above £300,000, which is £10,000.
So in total this means you'll pay £10,000 (£0 + £10,000).
If you buy a first home costing more than £500,000, you won't benefit from any change and will be buying under the standard system (see above).

The Autumn 2018 Budget extended the stamp duty tax exemption to first-time buyers purchasing shared ownership properties valued at up to £500,000. Again, if the property is worth more than that, you won't be exempt from paying stamp duty, even though you'll own less than the full £500,000.

Who counts as a first-time buyer?
A first-time buyer is someone who's never owned a property, whether bought or inherited, anywhere in the world. So if you inherited your late grandma's holiday home in Spain, even though you sold it straightaway, you won't count as a first-time buyer under these rules.

You also won't count as a first-time buyer if you're buying your first property with the intention to let it out.
How it works in Scotland
It's not actually called stamp duty in Scotland anymore. A reform brought in by the Scottish Government in April 2015 means it's now referred to as 'land and buildings transaction tax'.

However, while the name's changed, the principle hasn't. It's still a lump-sum tax that anyone buying a property or land costing more than a set amount has to pay. And it's a remarkably similar system to the one the rest of the UK uses, the main difference is the thresholds it uses are at different rates.

Here's an example of how the new Scottish system works, for an example property priced at £300,000.
You pay nothing below £145,000, which is £0.
You pay 2% on between £145,000 and £250,000, which is £2,100.
You pay 5% on the value of the property above £250,000, which is £2,500.
So in total this means you'll pay £4,600 (£0 + £2,100 + £2,500).
How it works in Wales

The Welsh Land Transaction Tax works similarly to the old stamp duty system, but the Welsh Government has set the the thresholds for the tax bands at different rates.

Here's an example of how the new Welsh system works, for an example property priced at £300,000.

You pay nothing below £180,000, which is £0.
You pay 3.5% on between £180,000 and £250,000, which is £2,450.
You pay 5% on the value of the property above £250,000, which is £2,500.
So in total this means you'll pay £4,950 (£0 + £2,450 + £2,500).

Calculate the Stamp Duty on your residential property purchase in England or Northern Ireland
Stamp Duty Land Tax (SDLT) is a tax on properties bought in England and Northern Ireland. You’ll need to pay it when you buy a residential property that costs more than £125,000. Use this calculator to work out how much Stamp Duty you’ll need to pay on your new home. You can also use it to work out how much you’ll pay on an additional property that costs more than £40,000, like a buy to let or second home, which attracts an extra 3% charge.

 

Check out The Money Advice Service for an easy to use calculator.