60 second read…what is stamp duty?
Stamp duty – or stamp duty land tax, to give it its full name – is a tax you pay every time you buy a residential property.
Stamp duty is due on properties purchased in England, Northern Ireland and Wales (Scotland has its own system). It applies to both leasehold and freehold properties irrespective of whether you’re a cash buyer or you have a mortgage.
The amount of tax you pay is based on the purchase price of the house or flat. The starting threshold is £125,000. If you buy a property below this amount, you won’t have to pay any stamp duty.
The stamp duty bands are:
For homes up to £125,000 no stamp duty is payable then;
- £125,001 to £250,000 – 2%
- £250,001 to £925,000- 5%
- £925,001 to £1,500,00- 10%
- £1,500,001 and above 12%
The way stamp duty is calculated was overhauled in 2014. It used to be that you’d pay a rate based on the total property price. But that was replaced with a ‘layer’ system.
That means you only pay the tax rate on the part of the property which falls within the band.
Here’s an example:
If you buy a property for £255,000, you’d pay £2,750 – so that’s nothing on the first £125,000, 2% on £125,000-£250,000 and 5% on the remainder.
As of April 2016, buyers of additional properties – including second homes and buy-to-lets – have to pay an extra 3% in stamp duty on any property costing more than £40,000.