Stamp duty is sometimes described as a tax on buying property. But there are different forms of stamp duty, such as stamp duty on buying shares. Find out how much stamp duty you may have to pay and when you pay it.
1. Stamp duty is charged when you buy a residential property
You don’t pay any stamp duty at all when you buy a residential property, such as a flat, or house, costing £125,000 or less. However, you have to pay stamp duty if you buy a property costing over £125,000.
SAVVY TIP: You don’t have to pay stamp duty if you decide to divide up your property and transfer part or all of it to your husband, wife or civil partner if you get divorced or dissolve your civil partnership.
If you buy commercial property, you pay different rates of stamp duty and you don’t pay it on property costing less than £150,000. The same applies if you buy what’s called a mixed use property (for example, a shop with flats above it).
STAMP DUTY: If you buy land to build a property on you have to pay residential stamp duty rates.
2. There are different forms of stamp duty
If you buy property, you pay stamp duty land tax or SDLT, to give it its full title. If you buy shares electronically, you pay stamp duty reserve tax. If you buy shares using a paper share certificate (which is far less common these days), you pay stamp duty.
3. Stamp duty has been around for centuries!
Stamp duty was introduced in 1694 – apparently – to pay for the costs of a war against France. It was introduced when you buy land in 2003. In 1980, you paid stamp duty on property purchases over £20,000, and until 1997 the highest rate of stamp duty was 2%.
4. You have to pay stamp duty within 30 days of the transaction
When you buy a property, you don’t have to pay stamp duty on the day you complete (which is the day you pay the full purchase price and, normally, the day you move in). You’re given 30 days to pay stamp duty, and if you don’t pay it by the deadline and send in a stamp duty land tax return on time, you will be charged a late payment penalty and interest by HM Revenue and Customs. You can find out more about how to pay stamp duty land tax on the Gov.uk website.
SAVVY TIP: Most of us who buy a property using a solicitor to carry out the conveyancing pay stamp duty when we complete on the property purchase, but it’s possible (likely, even!) that your solicitor will keep the money in a high interest account and pay HM Revenue and Customs closer to the 30 day deadline.
5. Stamp duty used to be paid at a single rate until the changes introduced in the Autumn Statement
The Autumn Statement introduced two changes to the stamp duty system. The first was a change in the rates (with higher top rates). The second and bigger change was that you now pay stamp duty at several different rates, according to the price of your property.
The new stamp duty rates are:
- £0-£125,000 = 0%
- £125,001-£250,000 = 2%
- £250,001 – £925,000 = 5%
- £925,001 – £1.5 million = 10%
- Over £1.5 million = 12%.
So, on a property costing £275,000 (which is the price of an average UK property), you’d pay stamp duty at 0% on the first £125,000, at 2% on the part between £125,001 and £250,000 and 5% on the part between £250,001 and £275,000. In all this would add up to £3,750 and the ‘effective’ rate of stamp duty you’d be paying would be 1.36% (this is the rate you’d pay if you paid one stamp duty rate on the entire purchase price).
SAVVY TIP: The effective rate is the overall rate you’re charged, if stamp duty was charged at one rate and not at tiered rates. I hope that makes sense!
The government says that 98% of people will be better off under the new system, and those who buy a property costing up to £937,500 will pay the same stamp duty or less than they would have paid under the old rules. However, someone buying an expensive property, say – £5 million, will pay £513,750 under the new system, compared to £350,000 under the old system.
SAVVY TIP: The chancellor said that people who have exchanged contracts before midnight on December 3rd, but not yet completed, could choose which system they’d pay stamp duty under. However, this concession doesn’t apply if you’d not yet exchanged contracts by 3rd December. Also, if you’d already completed on your property before 4th December, you can’t claim a refund on the stamp duty you’ve already paid.
Work out how much stamp duty you have to pay using HM Revenue and Customs’ stamp duty calculator.
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