What Is Stamp Duty?
Many expenses are involved when purchasing a new property. One of the most significant expenses aside from the property is the stamp duty cost. You must know what stamp duty is. Stamp duty tax (SDLT) is paid on land and property in Northern Ireland and England.
Most of us are not familiar with stamp duty because many of us only come face to face with it when we buy our first property. There are various forms of land taxes in different areas of England, but they are all forms of stamp duty such as in Scotland, the land tax known as ‘The Land and Building Transaction Tax,’ while in Wales, it is called ‘Land Transaction Tax.’
The basic rule for stamp duty is that the more the value of a property, the more stamp duty you have to pay. Stamp duty may be less for first-time buyers but more for people who own numerous properties. You’ll generally have to pay 3% on top of SDLT rates if buying a new residential property means you’ll own more than one.
You need to budget beforehand because stamp duties can be prohibitively expensive and cost you thousands of pounds, maybe more, depending on the property value.
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Everything You Need to Remember About Stamp Duty (SDLT)
Working out how stamp duty works may sound quite confusing, but in reality, it can be pretty straightforward. Let’s take a closer glimpse at different elements of stamp duty.
1. How Much Is Stamp Duty, and How Is It Calculated?
Usually, the stamp duty amount is usually calculated according to the property’s value. You must first pay stamp duty if your estate costs more than £125,000 for residential land and £150,000 for non-residential property. You can calculate your stamp duty yourself through a stamp duty calculator, but we have broken it down for you to make it easier to understand:
Property price rates:
£0 = £125,000: 0%
£125,000.01 = £250,000: 2%
£250,000.01 = £925,000: 5%
£925,000.01 = £1500,000: 10%
£1500,000 + = 12%
You can pay a higher price if the property in question isn’t your primary residence or you are not occupying the estate. Then you may have to pay 3% over the average rate of stamp duty. However, for first-time buyers, there is some relief which we will discuss further in the guide.
Visit UK Government Website for more information and updates about Stam Duty.
2. How Does Stamp Duty on a Second Home Work?
If you are the owner of more than one home, then the rate of stamp duty may be higher for you. However, this higher rate will only apply if you are buying a second property; if you are replacing your existing home with a new one, you will not have to pay high stamp duty. A stamp duty calculator can calculate how much extra you will have to pay, but traditionally, it will be 3% more than the average rate. Below we have listed the rates for a second home to make it easier for you; nevertheless, it is often a good idea to communicate your case with your mortgage advisor:
Property price rates for a second home:
£0 = £125,000: 3%
£125,001 = £250,000: 5%
£250,001 = £95,000: 8%
£950,001 = £1.5 million: 13%
Over £1.5 million: 15%
Visit UK Government Website for more information and updates about Stam Duty.
3. Stamp Duty for First-time Buyers
For new buyers, there is usually a stamp duty relief on the first £300,000 of the buying price of the property as long as the property’s value is under £500,000; This means that first-time buyers won’t have to pay the stamp duty on the first £300,000, which would give them a potential saving of £5000. Are you unsure whether or not you apply for a stamp duty relief?; This is everything you need to know:
How do you qualify as a first-time buyer?
You are only eligible to be a first-time buyer if you have never owned your own house before, even if that home is in another country. You can’t have invested more than £40,000 in any property anywhere in England or any other country. If you want to buy a property as joint ownership, then you and your partner should both be first-time buyers to be eligible for a stamp duty relief.
Stamp duty relief- how does it work?
If you buy a property that costs £500,000 or less, then you can get a stamp duty relief which means you don’t have to pay any stamp duty on the initial £300,000 of the property’s price. However, if your property costs more than £500,000, you must pay the standard stamp duty costs.
Is there any method by which the upfront cost of stamp duty can be reduced?
Sadly, the stamp duty cost cannot be paid in instalments and must be paid within 14 days of the purchase of the property, which isn’t a lot of time. As a stamp duty charge is a very high cost of buying a property, it is integral to the budget beforehand. Some applicants try to get a larger mortgage loan to cover the stamp duty expenditure. Still, it is essential to remember that you must only take a big enough loan that you can later repay, so make sure you think and plan carefully before beginning the process.
4. Stamp Duty for Non-Residence
For those applicants who do not live in the UK or are nationals of a foreign country and are looking to acquire a commodity in Northern Ireland or England, then they may need to pay 2% on top of the typical stamp duty rate for estates that are priced above £40,000.
5. How Do Repayments of Higher Stamp Duty Rates Work?
If you have purchased a new home but have not sold your old residence due to any delay in the selling procedure, then you may have to compensate for higher stamp duty rates because, on paper, you would still own two properties at one time. However, if you can sell your old home within three years of purchasing your new home, you can then apply for a refund on the extra stamp duty rate you paid when acquiring your new home. You can get a refund on the extra amount on top of the regular stamp duty fees if you:
- can sell your old home within three years of purchasing your new one
- claim your refund within one year of selling your old home
6. How and When Do You Have to Pay Stamp Duty
Do many of you wonder when you have to pay stamp duty? Stamp duty must usually be paid within 14 days of the buying process. You must notify HMRC about the tax you owe, as they can charge you a penalty if you don’t file your case or cannot make the stamp duty payments on time.
Now, if you are wondering how to pay your stamp duty, don’t worry we have you covered. Usually, your lawyer will deal with all the necessary paperwork. You can pay the stamp duty fee online, or you can print the paperwork and do it manually, but there are chances that your lawyer would have got most of the necessary information from you beforehand. Even if you are a first-time buyer and have no stamp duty to pay, your counselor will still have to go through the relevant paperwork.
7. When Is Stamp Duty Not Payable
You may come across some situations where the stamp duty will not be payable; some of these situations may include:
- If you are currently going through a court trial such as a divorce, separation, or dissolution where the property has to be transferred; and you and your partner have decided to separate for good, then you will be treated as an unmarried couple under stamp duty regulations, and your stamp duty will not be payable
- Secondly, stamp duty is not payable for any estate left under someone’s will, as long as no other reference is illustrated. In such a situation, there is also no need to alert HMRC.
- In cases where a property is gifted to you, you will pay no stamp duty until there is no accountable mortgage on the property. However, if the gifted property is mortgaged, you may have to pay the stamp duty on the designated threshold.
You may be eligible for Stamp Duty Land Tax (SDLT) reliefs if you’re buying your first home and in certain other situations. These reliefs can reduce the amount of tax you pay.
RELIEFS & EXEMPTIONS
You may come across some situations where the stamp duty will not be payable; some of these situations may include:
- If you are currently going through a court trial such as a divorce, separation, or dissolution where the property has to be transferred; and you and your partner have decided to separate for good, then you will be treated as an unmarried couple under stamp duty regulations, and your stamp duty will not be payable
- Secondly, stamp duty is not payable for any estate left under someone’s will, as long as no other reference is illustrated. In such a situation, there is also no need to alert HMRC.
- In cases where a property is gifted to you, you will pay no stamp duty until there is no accountable mortgage on the property. However, if the gifted property is mortgaged, you may have to pay the stamp duty on the designated threshold.
You may be eligible for Stamp Duty Land Tax (SDLT) reliefs if you’re buying your first home and in certain other situations. These reliefs can reduce the amount of tax you pay.
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The content on this page is based on our understanding and knowledge at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. Please contact us if you require further information about the content included on this page.
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