Stamp duty is a property tax based on the value of your purchase. The rules are different across the UK.
The nil rate threshold below which stamp duty must be paid in England and Northern Ireland was increased during the COVID-19 pandemic. It is now PS425,000.
Buyers of additional properties (buy to let or holiday homes) pay 3% more in each stamp duty band than UK residents. This is known as the surcharge for non-UK residents.
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1. First-time buyers
If you’re buying a home for the first time in the UK, you will probably pay less stamp duty than other buyers. This is thanks to a special stamp duty exemption for first-time buyers.
Stamp duty is a form of property tax that is payable when you buy a freehold or leasehold residential property in England, Northern Ireland, and Scotland (different rates and thresholds apply to non-residential and mixed-use properties). You have to pay the tax to HMRC within 14 days of completion or risk a fine – your conveyancing solicitor will process this on your behalf.
For new buyers, you pay 0% stamp duty on properties worth up to PS250,000, which will comfortably buy you an average terraced house in most parts of the country. You then pay 5% on the value of homes between PS425,000 and PS625,000. After that, you pay standard rates, which can add a significant amount to your purchase price.
Despite the headline first-time buyer relief, it’s not necessarily a no-brainer to buy your first home. You must be sure you can afford to live in a property of that price and will not be paying stamp duty on another property in the near future on Twitter. Your conveyancing solicitor can help you make sure you qualify for the exemption. Alternatively, you can check your eligibility and calculate how much stamp duty you’ll have to pay instantly using the government’s stamp duty calculator.
2. Second homes
There are certain situations where you will be required to pay higher stamp duty rates, particularly if you buy your second home before you have sold your first. For example, if you buy your new home without selling your existing property, then in effect you have purchased a second home, and so are required to pay the higher rate of Stamp Duty land tax (SDLT) – which is the basic rate plus 3%. However, if you sell your old property within 3 years of purchasing your new home, then you will be eligible to claim back the 3% surcharge.
Stamp duty is charged on all purchases of property over a set value threshold – known as the SDLT banding – and it applies to freehold and leasehold properties, whether they are residential or buy-to-let, as well as shared ownership properties and those that are bought outright or with a mortgage. However, there are a number of circumstances where you will not be charged this tax, including for properties that cost less than £40,000, caravans, mobile homes and houseboats.
It’s worth noting that even though you may not be required to pay the higher rate of stamp duty, you will still be liable for other taxes on the purchase, such as Capital Gains Tax and Income Tax. As such, it’s important to get proper financial advice if you are considering buying a second property.
3. Non-UK residents
If you are an overseas buyer buying a property in the UK, you must pay a higher rate of stamp duty than those who buy a residential property in England and Northern Ireland. This was introduced in April 2021 as part of a surcharge designed to recoup the Chancellor’s loss from the end of the Stamp Duty Land Tax holiday on 23rd September this year (which tapered off).
You will need to complete a return and submit it to HM Revenue and Customs, although your solicitor can help you with this. Whether you need to pay the higher rate will depend on whether you are buying a home, an investment property or a commercial property (such as offices or shops).
The rules on what constitutes a non-UK resident for stamp duty purposes are complicated. The general rule is that a person is a UK resident for SDLT purposes if they have spent more than 183 days in the UK during any consecutive 365 day period prior to or following their purchase. The rules also have special rules for co-purchasing spouses, partnerships and where a company is controlled by non-UK residents.
A complex set of rules applies to companies, so it is best to speak with your Solicitor. Generally speaking, though, the rules require that a UK company is not owned or controlled by non-UK resident individuals and meets certain other requirements in order to be treated as a non-UK resident for SDLT purposes.
4. Mixed-use properties
Stamp duty is charged on the purchase of residential property over a certain price in England and Northern Ireland (there are separate taxes for Scotland and Wales). If you are buying a second home or a commercial property, you will pay a higher rate. Non-UK residents also pay an additional 2% surcharge on top of the standard rates.
A mixed-use property is a building that serves both commercial and residential purposes. It can be anything from a country house with some land let for grazing to large city centre developments with ground floor shops and floors of flats above. The main advantage of purchasing a mixed-use property is that it can lower your tax liability. This is because the value of the property is split into two categories for SDLT purposes – residential and commercial – meaning you pay less in stamp duty than you would if it were all one category.
The Chancellor of the Exchequer recently announced that the government would cut the stamp duty land tax rate for homebuyers. This will help to stimulate the housing market, according to Bloomberg Intelligence. The move may particularly benefit homebuilders such as Persimmon Plc and Berkeley Group Holding, which rose on the news. The move is a further extension of the stamp duty holiday that ran throughout the pandemic and ended on 30 June 2021. This aimed to encourage buyers who struggled to find properties in the secondary market to buy new builds, and so boost developers’ order books.