Stamp Duty - what is it and do I have to pay it?

Purchasing a new property is often a time of great excitement for many. This is especially the case for those purchasing their first property, families making the ‘big move’ and relocating to a different area of the country and for couples buying their dream retirement property. Amid the excitement it is essential that all the basic, compulsory formalities are completed correctly in order to ensure a smooth transfer of property and completion of purchase. One such formality is the paying of Stamp Duty Land Tax. What this is and how to go about paying it will all be addressed below in more detail. However, at this stage it must be made clear that this payment is non-negotiable with regards to the cost of the property being purchased and if not completed or carried out incorrectly the consequences can be dire.

What is Stamp Duty Land Tax?

Stamp Duty Land Tax, more widely known as Stamp Duty, is a lump sum cost forming part of the process when purchasing property. As previously stated, the amount payable is non-negotiable and the amount you will have to pay is dependant upon property price. Stamp Duty was reformed in 2014 getting rid of the previous slab system where a single rate was payable on the whole property. A more progressive system now stands in its place where the lump sum you will be required to pay will depend on the price of the property you are buying; the more expensive the property, the greater the required Stamp Duty payment will be.

Do I have to pay Stamp Duty?

If you are purchasing property over the value of £125,000 you will be required to pay stamp duty.

 If the cost of the property you are purchasing falls below this marker then the answer is no, you will not have to pay stamp duty. (Be aware that this does not mean that you will be free from completing the required paperwork involved in purchasing a house).

After the £125,000 mark, there are a series of bands of increasing value for which the percentage of stamp duty also increases. It is essential to be aware of which bracket you fall within and consequently the amount of stamp duty which will be required of you to ensure you are able to afford the purchase as a whole. Outlined below are the pricing bands and the corresponding percentages of stamp duty followed by an example.

Property Price Band                                   Stamp Duty Percentage

£125,000 or less                                                  0%

£125,001 - £250,000                                          2%

£250,001 - £925,000                                           5%

£925,000 - £1.5 million                                      10%

£1.5 million and above                                      12%

Example

  • A couple purchase a house for £500,000.
  • They will pay nothing on the first £125,000.        ( £0 )
  • They will pay 2% between £125,001 and £250,000.  ( £2,500 )
  • They will pay 5% between £250,001 and £500,000.  ( £12,500 )
  • In total the couple will therefore pay a stamp duty total of £15,000.

What do I need to do?

You must file a return and make the stamp duty payment to the HMRC within 30 days of the completion of purchase. It is your responsibility as the purchaser to ensure this is completed even if a residential conveyancing team are looking after it or guiding you through the process. As touched upon earlier, you may still be required to file a return to the HMRC even if the property you are purchasing is below the £125,000 threshold within the 30 day cut off period.

Consequences

If the return and stamp duty payment are not made at all, are made late or aren’t correct you could face serious penalties. Firstly, a payment of the full amount will still be required. Secondly, you will face a penalty fine to be paid on top of the original amount. Finally, you will be required to pay interest on the stamp duty owed. It is your duty to ensure that the payment is both on time and error free. It does not matter if the delay and/or errors are the fault of your conveyancer an not yourself.

Should you find yourself entering into the purchase of a property it is essential you choose a trustworthy conveyancer who will be able to advise you on the stamp duty payments required and ensure that they are completed both correctly and on time. Here at Rowberry Morris we will be more than happy to help with any questions and/or queries you may have regarding stamp duty and the process of purchasing property on a broader scale