Stamp duty land tax (SDLT) is a tax on property in England and Northern Ireland that applies when you purchase a property over the price of £250,000. It applies to both residential and non-residential purchases, though the rates differ depending on the type of property and its value.
Stamp duty rates increase progressively with the value of the property, with higher-priced properties incurring greater charges but, allowances for first-time buyers are currently, very generous to help them get on board the property ladder.
How is Stamp Duty Calculated?
Stamp duty is calculated based on the value of a property meaning different rates apply depending on how much the overall price is.
The current rates for property in 2024 are:
0% for the first £250,000
5% on the portion from £250,001 to £925,000
10% from £925,001 to £1.5 million
12% on the portion over £1.5 million
For example, if you buy a property worth £600,000, no stamp duty is paid on the first £250,000, but the next £350,000 is taxed at 5%, resulting in a charge of £17,500 payable as stamp duty. When purchasing an additional property, an extra 3% surcharge applies if the buyer already owns a property valued above £40,000. For those purchasing multiple properties valued over £1,000,000, this will significantly increase the amount paid in stamp duty.
First-Time Buyers and Stamp Duty
Whilst previous buyers or those who currently own multiple properties have to abide by the usual rates for stamp duty, first-time buyers benefit from stamp duty relief whenever they purchase a property for the first time. First-time buyers currently do not pay stamp duty on the first £425,000 of a property purchase, and only 5% on the total value of the property up to £625,000.
Being a first-time buyer can result in significant savings, especially in high-value areas such as London and the South East, where the price of property exceeds the national averages. Should a first-time buyer purchase a home for £500,000, they would only pay 5% on the £75,000 portion above £425,000, equating to £3,750 payable as stamp duty.
However, if the property is worth more than £625,000, the first-time buyer must pay the standard rates and they will lose their allowance.
Stamp Duty for Cash Buyers
Cash buyers are still subject to stamp duty as the tax applies to both financed properties and cash payments. Even though cash buyers avoid mortgage-related costs and interest, they must consider stamp duty charges that apply based on the property's value as part of their overall spending budget.
If a cash buyer purchases a property for £800,000, they would be liable to pay £27,500 in stamp duty under the standard rates. It’s important to remember that stamp duty cannot be rolled into a mortgage and must be paid upfront.
High-Value Properties and Stamp Duty
For those buying high-value properties, stamp duty becomes a major factor in the overall cost of the transaction. The highest rate of 12% applies to the portion of the property price above £1.5 million. This can result in substantial tax bills for properties at or above this price bracket, with the average stamp duty charge running comfortably into the hundreds of thousands of pounds.
For instance, if you were to purchase a £2 million property, you would pay no stamp duty on the first £250,000, 5% on the next £675,000 (£33,750), 10% on the portion between £925,001 and £1.5 million (£57,500), and 12% on the final £500,000 (£60,000). The total tax bill in this case would be £151,250, which is a significant sum to be missing from your budget if you had not factored this in beforehand.
Exemptions and Paying Stamp Duty
Paying stamp duty is inevitable for most property buyers in the UK, however, there are a few situations where it does not apply or the rates may differ.
The most common exemptions to stamp duty are:
Transfers between spouses or civil partners: If you transfer a property to a spouse or civil partner as part of a divorce agreement or settlement, they will not have to pay stamp duty. This only applies to divorce agreements and settlements, any other transfer of property to a spouse will result in stamp duty charges.
Gifting/Inheriting Property: If you wish to gift property to a relative or loved one, you can do so providing that you remain alive for seven years after gifting the property, and as such leave it exempt from both stamp duty and inheritance tax. When inheriting property after a person has died, you will be liable for inheritance tax if it is not the family home, although you will not pay stamp duty.
Company Purchases: If a company purchases residential property, a 15% rate applies to properties worth more than £500,000, however, it is possible to find relief from this charge under certain conditions. If the property is bought for use as a rental property or, for occupation by employees of the company, the 15% tax can be waived providing the company submits proof in either of these scenarios.
All tax owed from stamp duty must be paid within 14 days of completing the purchase of a property. A solicitor or, conveyancer, typically handles the payment as part of the transaction process but, it remains the buyer’s responsibility to ensure payment is made. Late payments can incur penalties and interest, and potentially cause problems with registering the property with the land agency.
Upcoming Changes to Stamp Duty
The current stamp duty rates and reliefs for first-time buyers will end on 31st March 2025, followed by significant changes that will potentially affect regular buyers. New provisions are as follows: 0% rate at purchasing a property up to £250,000 will return to the previous level of £125,000.·
The introduction of a new 2% rate, which will be applied for properties valued from £125,000 up to £250,000·
0% rate for first-time buyers purchasing a property up to £425,000 will return to the previous level of £300,000.
First-time buyers Relief on property purchases up to £625,000 will return to the previous level of £500,000 but rates will remain the same at 5%.
Stamp duty is a critical expense when purchasing property in England and Northern Ireland. Whether you're a first-time buyer or acquiring a high-value home, understanding how stamp duty is calculated is crucial for effective budgeting and avoiding unexpected costs when buying property.
