Stamp duty land tax – to give it its full name - is a lump-sum tax that anyone buying a property or land costing more than a set amount has to pay. The rate you’ll pay the tax at varies based on the price of the property and the type, though we will focus on residential, rather than commercial, buildings.
However, whereas with every other tax, you only pay higher rates on amounts above a threshold, here you pay it on the whole amount.
This means that if you buy a property for £125,001 - £1 over the lowest threshold – then you will pay the 1% rate on the full amount – a total of £1250.01 – rather than just on the £1 extra (ie pay £125,000 and stamp duty's NOTHING).
For details on exceptions, such as ‘Disadvantaged Areas Relief’ or zero-carbon homes, see the DirectGov website.
What are the rate boundaries?
As the price you pay for a property increases, so do the rates of stamp duty. You pay a percentage of the cost, and the rate payable leaps up at a set of thresholds.
What Stamp duty rate will I pay?
|
Purchase price |
Stamp duty rate |
|
Up to £125,000 |
0% |
|
£125,000 - £250,000 |
0% (first time buyers) 1% (everyone else) |
|
£250,000 - £500,000 |
3% |
|
£500,000 - £1,000,000 |
4% |
|
£1,000,000 + |
4% (until April 2011) 5% (from April 2011) |
|
Correct at March 2010 |
The precise boundary for hitting a new tier is the first penny of that tier. So, though it’s a tad unlikely, if you were to pay £500,000.01, then you’d face 4% stamp duty (£20,000), but pay one penny less at £500,000 and stamp duty will be 3% (so £15,000) – an illustration of the absurdity of this tax’s structure.
The new stamp duty holiday for first time buyers
In the 2010 budget, the Chancellor announced that from 25 March 2010, first time buyers will be exempt from paying the first tier of stamp duty for two years.
That means that if you are a first time buyer (see below for the definition), and pay up to £250,000 for a property, you’ll pay no stamp duty at all if it’s purchased before 24 March 2012.
However, if you are not a first time buyer, you’ll still have to pay the 1% rate between £125,000 and £250,000.
Am I a first time buyer?
This was one of the most confusing questions to emerge from the budget, but there is now an answer. In a nutshell...
To get the exemption, none of the buyers can ever
have bought or owned any property before
The key is that couples (or groups of friends) must all be newbies to home ownership. If anyone has owned any home – whether leasehold or freehold - anywhere in the world, the exemption doesn’t apply and you must pay stamp duty at 1% for purchases below £250,000.
If you inherited a house, then you are logged as having owned property before, so won’t benefit from this stamp duty holiday.
You must also be buying a property as your main residence, so the exemption doesn’t apply to investment properties. Much like self-assessment tax returns, a buyer should declare it if they own another home and the Treasury says that HM Revenue and Customs can investigate your affairs.
