How is stamp duty calculated?
Working out stamp duty can be quite complex, and rates can vary if you’re a first-time buyer or if this is your second home. This is why using a stamp duty calculator can be useful.
The standard rate bands for stamp duty are as follows*:
- 0% stamp duty = on first £0 - £125,000 of property
- 2% stamp duty = on next £125,001 - £250,000 of property
- 5% stamp duty = on next £250,001 - £925,000 of property
- 10% stamp duty = on next £925,001 - £1.5 million of property
- 12% stamp duty = above £1.5 million of property
Figures accurate as of Aug 2018 as shown at gov.uk
The rate of stamp duty you’ll pay isn’t confined to just one of these bands. Each band applies to the equivalent portion of the property price. For example, if you bought a house for £300,000, the stamp duty you’d pay would be:
- The first £125,000 x 0% = £0
- The next £125,000 x 2% = £2,500
- The final £50,000 x 5% = £2,500
Total stamp duty = £5,000
Calculating stamp duty as a first-time buyer
If you’re a first-time buyer, you’ll be able to benefit from some stamp duty relief on properties up to the value of £500,000.
So when you’re buying a home up to the value of £300,000, you won’t have to pay any stamp duty at all.
When you buy a property of between £300,000 and £500,000, you won’t have to pay anything on the first £300,000, but you will have to pay a rate of 5% for the remaining portion.
For example, on a property for the value of £450,000, your stamp duty would be:
- The first £300,000 x 0% = 0%
- The remaining £150,000 x 5% = £7,500
Total stamp duty = £7,500
To be eligible to receive this discount, you’ll need to meet the following criteria:
- All parties involved in purchasing the property must be first-time buyers
- Your property can’t exceed a value of £500,000
If you’re a first-time buyer and the property you are buying is over £500,000, you’ll be required to follow the standard rate bands.
Stamp duty on second homes
If you are buying a second home – meaning that you now have multiple properties – or a buy-to-let property, you’ll be required to pay an additional 3% on the standard stamp duty rates. This rate applies to properties over £40,000, but excludes mobile homes, house boats, and caravans.
If you’re buying a new home but you’re not a first-time buyer, you’ll only be required to pay the standard stamp duty rates. Something to note is that if your main residence hasn’t been sold by the time you complete your new purchase, you’ll have to pay the higher rates given that you technically own two properties.
You will, however, be able to get a refund once you’ve sold your original home – as long as it’s within 36 months of the original purchase.
When is stamp duty not applicable?
There are a couple of scenarios where stamp duty land tax isn’t required:
- If you’re buying a property valued below £125,000
- If you’re transferring the deeds of your home to someone