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Stamp Duty - A Quick Guide

If you buy property over a certain value anywhere in the UK, you are liable to pay stamp duty. The system was reformed in December 2014 to make it fairer for the majority of home buyers.
Stamp Duty - A Quick Guide

 

The amount of tax you pay varies according to a number of factors: the price that the property has sold for; whether the property is for residential or commercial use; and whether it is freehold or leasehold.

 

Residential Use

For residential use, stamp duty becomes due on property bought for over £125,000. Above this amount, it rises in bands, starting at 1%.

 

Under the old system, stamp duty was a “single-slab” percentage payment. If a home rose in price above £250,000, for example, and moved from the 1% to the 3% bracket, that percentage would have applied to the whole purchase price.

 

The new system means that the rates will only apply to the portion of the value that falls within that band at the point of purchase – similar to income tax.

 

The Bands

Purchase Price

Stamp Duty Percentage

£0 - £125,000

0%

£125,001 - £250,000

2%

£250,001 - £925,000

5%

£925,001 - £1,500,000

10%

£1,500,000 +

12%

 

Previously, once the property value fell into a particular band, the stamp duty rate would have applied to the whole value. A property bought at £126,000 would have incurred a 1% on the whole price (£1,260).

 

Now, the revised 2% applies only to the amount within that threshold – in this case, just £1,000. Consequently, the buyer pays just £20 in total.

 

Need help crunching the figures? Use our Stamp Duty calculator here (not yet updated).

 

Adding to a Mortgage

It is possible to add the cost of stamp duty to your mortgage, but there are two points to consider.

  • Firstly, the interest accrued on this additional amount over the lifespan of a mortgage could be 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.

 

Modern Home 

 

Residential Lease

If the residential lease exceeds £125,000, you will pay 1% in Stamp Duty on amounts above the threshold.

 

Non-Residential / Mixed-Use Property

Purchase Price / Lease Premium

Stamp Duty Percentage

£0 - £150,000 [Rent < £1,000 p.a.]

0%

£0 - £150,000 [Rent > £1,000 p.a.]

1%

£150,000 - £250,000

1%

£250,000 - £500,000

3%

£500,000+

4%

 

Non-Residential / Mixed-Use Leases

If the non-residential or mixed-use lease is for more than £150,000, you pay 1% Stamp Duty on the amount above the £150,000 threshold.

 

All of the information provided is for use as an overview only and should not be the basis for any mortgage decision.