The Stamp Duty Changes And How They Affect You

In a bid to help struggling house buyers amidst the soaring cost of living, the Government has once again introduced cuts to Stamp Duty, the tax paid when you buy a property in England and Northern Ireland.

Here’s our full breakdown to help you understand what the changes mean and how it could affect you.

So, what exactly is Stamp Duty?

Essentially, Stamp Duty (or Stamp Duty Land Tax – SDLT) is a tax that’s paid to the Government on completion of a property purchase in England and Northern Ireland.

If you’re selling a property, it’s your buyer that pays it (as per the price bandings below). Although if you’re selling your property AND buying another, you’ll need to pay it on the property that you purchase.

If you really want to impress your friends with your knowledge, Stamp Duty was first introduced in England all the way back in 1694 during the reign of William and Mary as a transaction tax to raise money for the war against France!

Why does it keep making the headlines?

Well, just like the Bank of England uses the “bank rate” as a tool to try to control inflation, recent Governments have turned to adjusting stamp duty price bandings as a method to try and boost or maintain momentum in the property market.

Keeping the property market buoyant is important because it’s often intrinsically linked to the performance of the UK economy as a whole.

Plus, it provides a pretty hefty chunk of income for the Government with Stamp Duty accounting for £12.4 billion in revenue during 2020 – 21.

What’s changed?

Up until 2014 in England, Stamp Duty was a percentage of the price of the property that you purchased.

It looked like this;

Anything up to £125,000 was exempt, meaning that you didn’t pay anything.

Anything between £125,001 and £250,000 was subject to Stamp Duty of 1%.

So, if you purchased a property at £230,000, the Stamp Duty paid would have been £2,300 (which is 1% of £230,000).

From £250,001 to £500,000 you would pay 3% on the whole amount.

So, if you purchased at £400,000, you would have paid £12,000 Stamp Duty (which is 3% of £400,000).

From £500,001 to £1 million you’d have paid 4% on the full amount.

From over £1 million to £2 million, it was 5%.

And anything over £2 million was 7%.

This was known as a “slab” structure because you paid the single percentage on the full amount.

In 2014, it was changed to a “progressive” structure which is where it starts to get slightly confusing.

It meant that instead of paying a percentage on the full amount of the purchase price, you would now pay different percentages on the full amount based on a variety of price bandings.

On 23^rd September 2022, Chancellor Kwasi Kwarteng announced changes to this progressive structure which means that the Stamp Duty price thresholds currently look like this:

£0 – £250,000 = NO stamp duty (This is increased to £425,000 for First Time Buyers, but on the proviso that the full purchase price of the property is less than £625,000)

£250,001 – £925,000 = 5%

£925,001 – £1,500,000 = 10%

£1,500,001 upwards = 12%

BUT, you don’t pay the percentage on the full amount.

You pay the percentage as per these price bandings up to the full purchase price of the property.

For example, let’s say you purchase a property at £500,000.

You pay nothing on the first £250,000 of the purchase price because that’s exempt.

You then pay 5% on the DIFFERENCE between £250,000 and £500,000 – NOT the full amount.

So, at £500,000 the amount you would pay in Stamp Duty is £12,500 (5% of £250,000).

Now, let’s say you purchase a property at £950,000.

You’d pay nothing on the first £250,000.

Then 5% between £250,0001 and £925,000.

And then 10% on the remaining £25,000.

So, the total Stamp Duty you’d pay would be £36,250.

Which breaks down to £0 up to £250,000.

£33,750 on the next £675,000.

And £2,500 on the last £25,000.

We know, it gets a little bit confusing so if you’re wondering how much stamp duty you might have to pay, the best thing to do is search on Google for a “stamp duty calculator” and you’ll find plenty of links.

There’s a link to a useful one here (please note we have no affiliation to this site):

https://www.stampdutycalculator.org.uk/

Are there any exceptions?

Yes, it’s not the same for every property purchase. First of all, the above only applies to properties purchased in England and Northern Ireland.

Wales and Scotland have their own property tax systems.

And as you’ve seen mentioned above, things change if you’re a First Time Buyer.

In the recent changes, First Time Buyers don’t pay any Stamp Duty on property purchases up to £425,000 so long as the property you’re purchasing costs less than £625,000.

If you’re a First Time Buyer (and a lucky one at that!) purchasing a property at more than £625,000 then you’re no longer exempt, and you’ll pay Stamp Duty in line with the price bandings above.

Also, if you already own a property and you’re purchasing an ADDITIONAL property, you’ll be subject to different price bandings that work in the same way – there’s just an additional 3% added to each of the bandings.

Say, for example, that you already own a property and you’re purchasing a buy to let investment. You’ll pay:

3% on the first £250,000

8% between £250,0001 and £925,000

13% between £925,001 and £1,500,000

15% on anything over £1,500,001

So here, a property purchase at £200,000 would incur a Stamp Duty payment of £6,000 (3% of £200,000) compared to £0 if you were purchasing as your main residence and not an additional property.

In the same scenario, a property purchase at £650,000 would incur a Stamp Duty tax bill of £39,500 compared to £20,000 if you were not a First Time Buyer and were purchasing as your main residence – not an additional property.

It gets even more expensive if you’re a non-UK resident whereby you’ll be subject to an EXTRA 2% surcharge on top of the additional 3% added to the price bandings for buy-to-let properties and second homes.

When does it get paid?

If you’re buying in England or Northern Ireland, you have 14 days from the date of completion (the day the keys are handed over) to pay stamp duty.

If you take longer, you could face a fine and possibly interest on top.

In reality, this is something that your solicitor will sort as part of their conveyancing duties. However, it’s legally your responsibility to ensure your stamp duty is paid.

So, there you have it.

Our complete breakdown to the latest changes to Stamp Duty Land Tax (SDLT).

I hope you found it useful and, as always, we’re here to help so if you have any questions about property please feel free to send an email to me at ben.brain@hannells.co.uk.

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