If you buy property over a certain value anywhere in the UK, you are liable to pay Stamp Duty Land Tax (SDLT). The amount of tax varies according to the price that the property has sold for, whether the property is for residential or commercial use, and whether it is freehold or leasehold.
For residential use, stamp duty becomes due on property bought for over £125,000. Above this amount, it rises in bands, starting at 1%. Properties deemed to be in disadvantaged areas previously had a higher starting threshold of £150,000, but this was abolished in April 2013.
£0 - £125,000 (0%)
£125,000 - £250,000 (1%)
£250,000 - £500,000 (3%)
£500,000 - £1,000,000 (4%)
£1,000,000 - £2,000,000 (5%)
Once the property value falls into a band, the stamp duty rate applies to the whole value, not just the increment above the previous threshold. So, while a property bought at £125,000 incurs no stamp duty, a property bought at £130,000 incurs a 1% charge on the whole amount (£1,300).
Adding to a Mortgage
It is possible to add the cost of stamp duty to your mortgage, but there are two main disadvantages to doing so.
- Firstly, the interest accrued on this additional amount over the lifespan of a mortgage is substantial.
- Secondly, it may affect the loan-to-value tier that you had planned for your mortgage. If you’re planning to apply for an 85% LTV mortgage, you might find that the extra lending required to cover the cost of stamp duty pushes you towards a more expensive 90% LTV mortgage instead.
As always, we recommend that you seek professional advice if you are unsure which type of mortgage is right for you. All of the information provided above is for use as an overview only and should not be the basis for your mortgage decision.