The investor’s guide to stamp duty

What’s the threshold? Who is exempt? How much will I have to pay? Find out everything you need to know about stamp duty

In April 2016, the former Chancellor George Osborne introduced a three per cent stamp duty surcharge on the purchase of all second or buy-to-let properties.

It sent ripples of shock through the buy-to-let market, not least because the previous exemptions for landlords or companies who owned more than 15 properties are no longer in place. But what actually is stamp duty? And who will have to pay what, when?

What is stamp duty?

For most UK homeowners, the Stamp Duty Land Tax is, in some form or other, an inevitability. The tax, payable in a lump sum, is applicable to residential properties worth £125,000 and over (and to non-residential properties or land worth £150,000 and over), in England, Wales and Northern Ireland (Scotland has its own Land and Buildings Transaction Tax, with different rates). New homeowners are required to declare stamp duty to HM Revenue and Customs within 30 days of completion.

stamp-duty-what-is-it-how-much-2This applies to people buying freehold properties, those buying a new or existing leasehold property, if you buy as part of a shared ownership scheme (i.e. run by local housing authorities or development corporations, amongst others), or you obtain a property in exchange for payment, for example if you were to take on half your partner’s mortgage when you marry (assuming the property was worth more than the basic stamp duty band).

There are some that are exempt: those who inherit property, for example, or who are transferred it through a divorce or dissolution of a civil partnership, or who receive the property as a gift, i.e. without any exchange of money or other form of payment. Similarly freehold homes worth less than £40,000 are also excluded (for properties worth between £40,000 and £125,000 you still have to declare the stamp duty, even though you won’t actually need to pay anything).

How much will you pay?

At present, stamp duty on freehold residential properties that are the owner’s sole residence fit into five categories: under £125,000 is nil, as outlined above, from £125,001 to £250,000 is two per cent, between £250,001 and £925,000, five per cent, £925,001 and £1.5 million 10 per cent. Over £1.5 million is 12 per cent.

The tax is accumulative, so if the house you’re buying is worth, say, one million, you would pay two per cent tax on the first £250,000, five per cent on the value up to £925,000 and 10 per cent on the final £75,000 – or £43,750 in total.

However if your property is a second home, or is being bought as a buy-to-let investment, an extra three per cent is added to all categories – including up to £125,000 – making the bands three per cent, five per cent, eight per cent, 13 per cent and 15 per cent respectively. So if that one million pound property you were buying was a second home or a buy-to-let investment, you should expect to pay £73,750 stamp duty.

stamp-duty-what-is-it-how-much-3Joint ownership and multiple properties

Married couples are counted as one ‘unit’.  So having a second home in your wife or husband or civil partner’s name won’t exempt you from the duty. Similarly, home-owning parents applying for a joint mortgage with their child will also be charged at the higher rate. Nor does it only count for second properties in England, Wales and Northern Ireland – properties owned abroad are also included. The only exception is for people buying non-fixed second homes: mobile homes, caravans or houseboats.

It’s quite a hike – particularly if you are buying multiple properties. However, while the 3% hike certainly led to a glut of buy-to-let sales in February and March 2016, data from the Association of Residential Letting Agents released in October 2016 suggests that the stamp duty hike has yet to deter landlords, with the number of flats available to rent reaching an 18-month high.

Still not sure what you need to pay? Find out by plugging your details into one of the many free stamp duty calculators available online.

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