A stamp duty land tax (or stamp duty) is payable by a purchaser of a property, commercial or residential, to HM Revenue & Customs (HMRC). The government’s annual income from the collection of this tax amounts to £12 billion, around 2% of the tax the Treasury collects. Understanding how stamp duty works is a key cost to factor in when looking to purchase a property. Your residential conveyancing solicitor will be able to advise you on how much stamp duty is payable.
Who must pay and how much to be paid?
The default position is that anyone buying a residential property is liable to pay stamp duty. However, there are exceptions and reliefs available in certain circumstances. If you are to spend £40,000 or more on a house, which is more than likely, then you are likely to pay stamp duty.
Before you immerse yourself in a boggle of numbers, you must first understand that stamp duty only applies past a certain threshold. Which means you only have to pay a percentage applied on a specific portion (consideration) of the total purchase price.
For example, if you are to pay £500,000 for a house and the tax threshold is £300,000, then the stamp duty will apply only to the remaining £200,000.
For first-time buyers of houses
The government makes a concession for first-time house-buyers in England & Northern Ireland. If the house you purchase is £500,000 or less, then the threshold begins at £300,000 where the rest of the amount (consideration) is taxed at a rate of 5%. Therefore, if your first-time purchase of your house is £300,000 or less you owe no stamp duty to HMRC.
However, this concession is unavailable if the house you purchase exceeds a value of £500,000.
Stamp Duty Standard Rates
THRESHOLD | RATE |
£0 – £125,000 | 0% |
£125,001 – £250,000 | 2% |
£520,001 – £925,000 | 5% |
£925,001 – £1,500,000 | 10% |
Over £1,500,000 | 12% |
The rates above are applicable to England & Northern Ireland from 1 October 2021. Assuming you wish to buy a house valued at £450,000, how much stamp duty do you owe HMRC?
For the first £125,000 at 0% = £0
For the next £125,000 at 2% = £2,500
For the remaining £200,000 at 5% = £10,000
Total owed to HMRC = £12,500
If you already are a homeowner and wish to purchase another property, a separate stamp duty of 3% will apply on top of the standard rates. This is known as a stamp duty surcharge. Similarly, if you are a non-UK resident, you must pay a 2% surcharge even if you are a first-time buyer. If you are a non-UK resident purchasing a second house, you will have to pay both the 3% and the 2% on top of the standard rates. As with first-time buyers, there are concessions available as reliefs (discounts) for other house buyers that apply based on your circumstances.
How did the stamp duty holiday affect the UK property market?
To ease the difficulties faced during the pandemic, the government introduced a holiday on stamp duties in July 2020 to be in place till 31st March 2021. However, it was extended, due to popular demand, until end of June 2021 and gradually reduced to the normal rate by the end of September 2021. The holiday meant house-buyers of residential property in England did not have to pay stamp duty on the first £500,000 of the purchase price.
It is likely that the stamp duty holiday directly resulted in the increase in prices of the UK housing market. For context, the UK House Price Index for November 2021 shows an increase of 10.0% compared to the previous year. The stamp duty holiday helped keep the property market active during a time when the economy was struggling.
It is important to point out that we did not see the property market crash, as predicted by some economists, following the end of the stamp duty holiday.
Contact one of our conveyancing solicitors to know more about the stamp duty you are likely to pay. You can also visit the very informative government website on stamp duty which includes an easy-to-use stamp duty calculator.