Our complete guide to understanding stamp duty

When purchasing a property in England or Northern Ireland, one of the most significant additional costs to consider is Stamp Duty Land Tax (SDLT), also known as stamp duty. This crucial aspect of property transactions can have a substantial impact on your budget and overall costs. Whether you're a first-time buyer, looking to invest in a second home, or simply curious about the costs that come with buying a property, this guide will provide you with essential information about stamp duty.

What is stamp duty?

Stamp Duty, officially known as Stamp Duty Land Tax (SDLT), is a tax levied on property purchases in England and Northern Ireland. It applies to both freehold and leasehold properties above a certain price threshold.

The stamp duty payable depends on the property's purchase price and whether the buyer is a first-time homeowner or purchasing an additional property. The tax is calculated on a sliding scale, with higher rates for more expensive properties. For first-time buyers, stamp duty can be avoided on properties below £425,000, though this changes on 1st April 2025. The buyer typically pays stamp duty, and it must be submitted to HM Revenue and Customs within 14 days of completing the property purchase. The government occasionally adjusts stamp duty rates and thresholds as part of broader economic policies.

Who is exempt from paying stamp duty?

Here are a few ways to potentially avoid or reduce stamp duty when buying a house in the UK. The rules until the 31^st of March 2025 are the following:

• First-time buyer relief applies to people purchasing their first home. They pay no stamp duty on properties up to £425,000 and benefit from reduced rates on properties up to £625,000.
• Stamp duty doesn't apply below a certain threshold. Currently, you won't have to pay it if the property you're buying doesn't cost more than £250,000.
• For the transfer of property in divorce or separation, no stamp duty is payable.
• If a property is passed down to you as a gift, meaning no money is exchanged, stamp duty may not apply.

From the 1^st of April 2025, the following changes will apply to stamp duty relief and exemptions:

• The threshold at which first-time buyers pay no stamp duty will be reduced from £425,000 to £300,000, and the threshold at which they qualify for relief will be reduced from £625,000 to £500,000.
• The threshold at which stamp duty does not apply will be lowered from £250,000 to £125,000.

If you can't avoid stamp duty, you could claim a refund in specific cases. This is the case for uninhabitable properties, meaning that if you buy a derelict property to renovate, you might be able to get that money back.

It's important to note that attempting to avoid stamp duty illegally (like underreporting the purchase price) is tax evasion and carries severe penalties. Always consult with a qualified tax advisor or solicitor for advice specific to your situation.

How is stamp duty changing in April 2025?

Significant changes to Stamp Duty Land Tax in England and Northern Ireland are coming into effect on the 1st of April 2025. These changes primarily affect the thresholds at which different stamp duty rates apply, which will make it more expensive to purchase property.

The starting threshold for paying stamp duty will be lowered from £250,000 to £125,000. The threshold at which first-time buyers can be exempt from paying stamp duty will be reduced from £425,000 to £300,000.

Stamp duty rate from 1st April 2025

The stamp duty changes will include a new 2% threshold from £125,001 to £250,000:

For example, the stamp duty on a £460,000 house in England after April 1st would be calculated like this:

• First £125,000: No stamp duty.
• Next £125,000: 2% of £125,000 = £2,500
• Remaining £210,000: 5% of £210,000 = £10,500

Total: £2,500 + £10,500 = £13,000.

Stamp duty rates for first-time buyers from 1st April 2025

For first-time buyers, there are also new stamp duty rates. The threshold at which you do not need to pay stamp duty is lowering.

When do I have to pay stamp duty?

Stamp Duty Land Tax (SDLT) must be paid within 14 days of the 'effective date' of the property transaction, which is typically the completion date of the purchase. This is when you become the legal owner of the property.

You have 14 calendar days to file your SDLT return and pay the tax. While your solicitor or conveyancer usually handles this process, it's ultimately your responsibility to ensure it's paid on time. Failing to pay within the 14-day window can result in penalties and interest charges.

SDLT is usually paid through your solicitor, who will transfer the funds to HM Revenue and Customs (HMRC). Even if no tax is due (for example, if the property price is below the threshold), you must still submit an SDLT return within the 14-day period. After payment, you'll receive a certificate from HMRC, which you'll need to register the property in your name with the Land Registry.

Note that for new-build properties, the 14-day clock starts when the property is finished or when you move in, whichever comes first. For new leases, the effective date is usually when the lease is executed or, if earlier, when you take up occupation of the property.

What is the definition of a second home?

A 'second home' is defined as any additional residential property you own or have a share in, including holiday homes and buy-to-let investments. If you're buying a new main residence but haven't sold your previous one, you'll initially pay the higher rates. However, you can claim a refund if you sell your previous main residence within 36 months.

In cases where there are multiple buyers, if any buyer owns another property and isn't replacing their main residence, the higher rates usually apply to the entire purchase. For SDLT purposes, married couples and civil partners are treated as one unit. If either partner owns another property, the surcharge typically applies.

Certain properties, like caravans or houseboats, are exempt from the surcharge. Companies and trusts buying residential property usually pay higher rates, regardless of whether they own other properties. It's important to note that the surcharge applies even if your other property is outside the UK.