What is Stamp Duty? 

Stamp Duty was originally introduced in England in 1694 to raise money for the war against France, but has stuck as a tax on the purchase of assets including property and shares, and a legal record of those transactions.

These days, stamp duty land tax (SDLT) – which applies specifically to the purchase of land, houses, flats and other buildings in England and Northern Ireland  – is a nice little earner for the Treasury.

The amount raised varies according to the state of the property market, and fell to under £8.7 billion in 2020/21 as a result of 2020’s lockdown and changes to the rules. However, in the preceding six tax years it averaged around £11.6 billion, according to HMRC.

In normal non-Covid times, SDLT is calculated on property purchases over a certain value as a percentage of the sale price, and is paid by the buyer. Normally, says Jeremy Leaf, a north London estate agent, “the purchaser pays stamp duty within 14 days of completion. Their solicitor usually handles this on their behalf on completion day.”

How Much Do I Pay? 

SDLT is a banded arrangement, with more expensive properties subject to higher rates of tax than cheaper ones. During the Covid-19 pandemic, from July 2020 until end of June 2021, no Stamp Duty was paid on properties up to £500,000.

That has now been reduced to £250,000, and from October 1 the normal rates, indicated below,will apply.

Property Price	SDLT Rate
Up to £125,000	0%
The next £125,000 (portion from £125,001 to £250,000)	2%
The next £675,000 (portion from £250,001 to £925,000)	5%
The next £575,000 (portion from £925,000 to £1.5 million)	10%
The remaining amount (portion above £1.5 million)	12%

The banded system can make it tricky to calculate what you’ll pay. Let’s look at the example of a property costing £300,000:

• On the first £125,000 of the property price 0% SDLT is payable = £0
• On the next tranche, £125,001 to £250,000, SDLT is charged at 2% = £2,500
• On the final tranche, from £250,001 to £300,000, SDLT is charge at 5% = £2,500
• Total Stamp Duty = £5,000

For comparison, a £500,000 property would be taxed at £15,000 while a £1 million property would be subject to SDLT of £43,750.

Clearly, banding makes for a complex calculation, but there is an SDLT calculator on the government website here to help you work out what you will have to pay. You must file an SDLT return if you pay more than £40,000 for a property, even if there’s no tax due.

What was the Stamp Duty Holiday? 

The SDLT holiday introduced in July 2020 was designed to support the housing market in the depths of lockdown, and it proved extremely (arguably overly) successful.

Under it, no SDLT was payable on the first £500,000 of a property’s value, saving buyers up to £15,000 on the normal rate. Unsurprisingly, would-be buyers leapt at the chance to save such sums and house prices have soared.

The discount has subsequently been reduced. Between 30 June and 30 September 2021, the SDLT holiday is tapered so that the first £250,000 of a property purchase is exempt from stamp duty while the other rates remain unchanged, resulting in a maximum saving of £2,500.

These rates apply to properties that will be used as your main home, but there is a surcharge for additional properties. Leaf explains:“Second homeowners and buy-to-let landlords pay an additional 3%, while non-UK residents also pay a 2% non-resident tax.” It’s possible to reclaim the 3% additional tax if you sell your main home within three years of buying a second home.

Leaf adds that there are different rates of stamp duty for residential, non-residential and mixed-use purchases to bear in mind too: “The best way of checking how much stamp duty you will pay is to use the HMRC calculator.”

What About First-Time Buyers?

Importantly, first-time buyers (including those buying through a shared ownership scheme) get special treatment. Provided the property costs no more than £500,000 and is going to be used as their main home, these buyers pay nothing on the first £300,000 and 5% on anything above that (This arrangement was suspended while the SDLT holiday was in full force, but reinstated from 1 July this year).

There are also certain situations exempt from SDLT. No duty is payable, for example, if you’re involved in a property transfer but no money or other payment changes hand; if a property is left to you in a will; if a property is transferred in a divorce settlement; or if, as already mentioned, you pay less than £40,000 for the property.

Are there any strategies that could help purchasers better manage stamp duty? “If you are getting close to a stamp duty threshold, it may be worth negotiating hard to get the purchase price just below that level,” says Leaf.

“If you have stretched yourself to buy your home and don’t have much spare cash left over, you might be able to borrow more on your mortgage to cover the stamp duty bill.” But he stresses there are downsides to that strategy: you will pay interest on the borrowing, and over a 25-year mortgage term that adds up. It could also push you into a higher loan-to-value band and onto a higher mortgage rate.