Homes With Zero Stamp Duty
If you’re interested in purchasing a property, you may have also heard about stamp duty. Stamp duty, short for stamp duty land tax, is a tax that must be paid by property buyers upon purchasing a first home, a new home, or a second property.
Keep reading to learn more about stamp duty rates, how to calculate them, and if you could benefit from stamp duty tax exemption.
What you can find in this article:
- Homes With Zero Stamp Duty
- What Is Stamp Duty?
- Who Needs to Pay Stamp Duty?
- Stamp Duty Residential Property Rates
- What Is the Deadline for Paying Stamp Duty?
- How Do You Pay Stamp Duty?
- Stamp Duty Exemptions
- When Can You Reclaim Stamp Duty?
At REMAX Star Canning Town, our experienced estate agents are always up to date on the latest rules and regulations and offer property buyers all the support and advice they need to make the best choice when purchasing a property. Whether you are a first time home buyer, looking to buy a new or second home, or an investor, we have all the information you need to assist you in securing the ideal property. Contact us at 0207 055 0441 or book an appointment to see us for more details.
What Is Stamp Duty?
Stamp duty is a tax that applies to residential property and land purchases in England or Northern Ireland. The tax is applied to purchases that exceed a certain price threshold.
For properties in Scotland, stamp duty is known as land and buildings transaction tax (LBTT). For properties in Wales, stamp duty is known as land transaction tax (LTT).
Stamp duty also applies to freehold and leasehold properties, as well as to properties bought directly or with a mortgage.
Until 30 September 2021, stamp duty does not apply for properties under £250,000. For properties that exceed this threshold, the stamp duty rate is paid based on the value of the property.
As of 1 October 2021, stamp duty will not apply for properties under £125,000.
Stamp duty rates are different for:
- First time buyers
- Additional properties
- Non-UK residents
First time buyers pay no stamp duty on properties with a value of up to £300,000. In addition, they benefit from a discounted rate for properties with a value of up to £500,000.
Buyers who already own a home and are buying an additional property will have to pay an extra 3% stamp duty. This tax applies to properties with a value that exceeds £40,000.
Who Needs to Pay Stamp Duty?
Stamp duty is owed by the property buyer. The seller does not have to pay any stamp duty unless they buy a property themselves.
Stamp Duty Residential Property Rates
The standard stamp duty rates valid as of 1 October 2021 are:
- 0% SDLT for the properties under £125,000
- 2% SDLT for the price portion between £125,001 and £250,000
- 5% SDLT for the price portion between £250,001 and £925,000
- 10% SDLT for the price portion between £925,001 and £1,500,000
- 12% SDLT for the price portion exceeding £1,500,001
Stamp duty rates are different depending on whether or not you are a first time buyer and the type of property you are purchasing.
Keep reading to find out what the stamp duty rates are for different types of buyers and properties. Alternatively, you can use the government website stamp duty calculator to find out how much tax you need to pay.
How Much Stamp Duty Do First Time Home Buyers Pay?
First time buyers are buyers acquiring their first property, to be used as a residence. If you have owned any other properties in the past, in the UK or abroad, you will not be considered a first time buyer for the purpose of stamp duty.
The initial stamp duty rate for first time buyers, valid until July 2020, was applicable for properties with a value of up to £300,000.
As of July 2020 and until July 2021, first time buyers benefitted from a government-issued stamp duty holiday. It was applicable for properties in England and Northern Ireland with a value of up to £500,000.
As of 1 July 2021, the rate of stamp duty applicable to first time buyers is zero for properties up to £300,000. For properties with a value of up to £500,000, first time buyers pay 5% SDLT for the portion of the price exceeding £300,001.
For example, if you are buying a first home worth £300,000, you will pay 0 stamp duty. If the value of the home is £350,000, you will pay 5% stamp duty for the portion of the price from £300,001 to £350,000.
For properties exceeding £500,000, first time buyers pay the standard stamp duty rates and do not benefit from any relief.
How Much Stamp Duty Do You Pay for a Second Home?
When it comes to additional properties, stamp duty rates are calculated by threshold. Therefore, if the additional property you are purchasing costs less than £40,000, the SDLT is 0.
For properties exceeding £40,000, you will pay:
- 3% SDLT for the price portion between £40,001 and £125,000
- 5% SDLT for the price portion between £125,001 and £250,000
- 8% SDLT for the price portion between £250,001 and £925,000
- 13% SDLT for the price portion between £925,001 and £1,500,000
- 15% SDLT for the price portion exceeding £1,500,001
How Much Stamp Duty Do You Pay for a New Build?
The standard stamp duty rates apply to new builds in the same way they do for other types of properties. You can calculate how much stamp duty you need to pay depending on the final price of the new build you choose and the type of buyer you are.
The final price will include any additional or optional features such as the kitchen and bathroom fittings or built-in wardrobes.
However, you may be able to save some money from the total property price as stamp duty does not apply to any removable fixtures. These may include furniture, carpets, curtains, etc. You can subtract the value of these removable fixtures when calculating the final price you owe stamp duty on.
How Much Stamp Duty Do You Pay for a Shared Ownership?
For shared ownership properties, the SDLT rates remain the same. The difference is that you have several options for paying the tax. Thus, you can either make a one-off payment or pay in stages.
If you make a one-off payment, it will be based on the market value of the property. You will not have to make any additional payments thereafter.
If you want to pay SDLT in stages, you will pay the tax due for the first sale amount and delay any further tax payments until you acquire 80% of the total property.
The shared ownership schemes this applies to must be run by:
- A local housing authority
- A housing association or action trust
- The Northern Ireland Housing Executive
- The Commission for the New Towns
- A development corporation
How Much Stamp Duty Do You Pay If You Are Not a UK Resident?
If you haven’t lived in the UK for at least 6 months during the last 12 months before the purchase, you may be subject to a 2% SDLT surcharge. This is because you will not be considered a UK resident for the purposes of stamp duty.
However, certain categories of buyers can claim relief. To learn more about this type of relief, click here
What Is the Deadline for Paying Stamp Duty?
The deadline for paying stamp duty is 14 days as of the effective date of the transaction. To pay it, you will have to file a Stamp Duty Land Tax (SDLT) return.
Penalties and interest are applicable if you fail to submit the return and make the payment by this deadline.
How Do You Pay Stamp Duty?
The solicitor handling your property transaction can handle the stamp duty payment as well. Most property buyers prefer this as it is easier for them.
However, if you prefer to, you can also submit the return and make the payment yourself through HMRC.
Make sure you do this even if there is no stamp duty due for the property you are purchasing.
Stamp Duty Exemptions
Stamp duty also comes with certain exceptions. These include:
- Properties transferred based on a court order in a separation, divorce, or dissolution proceeding
- Properties acquired based on a will
- Gifted properties if there is no outstanding mortgage on them
Check the full list of reliefs and exemptions here.
When Can You Reclaim Stamp Duty?
In certain cases, you may be able to reclaim all or part of the stamp duty you paid when purchasing a property. To be able to reclaim the tax, you must be the main buyer of the property or an agent acting for them.
One example is if you paid the higher rate of stamp duty applicable to additional properties and sold your main home in the meantime. The sale of your main residence must take place within 3 years of buying the new property.
This 3-year period may be exceeded only in exceptional circumstances that were outside your control, such as:
- the sale was prevented by the impacts of the COVID-19 pandemic
- the sale was prevented due to action taken by a public authority
To benefit from the refund, you must contact HMRC after you have managed to sell the previous home and explain the reasons that prevented you from doing do so within the 3-year deadline.
Stamp duty was first introduced as a means for the government to raise money to fund the war against France in 1694. Even though that war has long ended, stamp duty is still applicable today.
And since it is a welcome way to increase government revenue, it doesn’t look like it will be eliminated soon.
Therefore, in order to not exceed their budgets, property buyers should be well aware of applicable stamp duty rates and take into account how they will affect their transactions and finances.
At Remax Star Canning Town, we pride ourselves on our vast experience in closing profitable real estate deals for both buyers and sellers and are always available to support our clients. We provide extensive advice on applicable rules, regulations, and taxes, and guide buyers from the start of their property search to the successful closing of the transaction.