If you are buying a property anywhere in the world, you will be asked to pay Stamp Duty or Stamp duty land tax to the government. This is a huge expense to the buyer and should definitely be taken into consideration when buying a property.
But what is stamp duty and who is eligible? We will try to answer all of these questions in this article. We will try to focus on the stamp duties as per land taxation laws of England and Northern Ireland.
What is Stamp Duty?
You are charged a fee when you are buying a property and it is called Stamp Duty Land tax (SDLT). It is a kind of document which mentions transactions of the parties involved. It is paid in lump sum and should be counted along with the price of your property.
Who pays Stamp Duty (SDLT)?
The buyer will pay the stamp duty and not the seller. It will be part of the purchase process and the solicitor will pay it on your behalf. The SDLT is a percentage of your property value. SDLT varies with property value, whether it’s the buyer-only property and where the property is located. Connect with an expert to understand the changes introduced by the UK government in SDLT.
How to Calculate Stamp Duty (SDLT)?
Stamp Duty is calculated based on your property’s value. However, the stamp duty is not flat and is calculated based on the buyers and the property. Let’s first understand what the charges will be for the first-time buyer.
Stamp Duty for first-time buyers:
Before understanding the stamp duty calculation, lets see who are first time buyers as per the definition
- You should never have owned a property before even if you have sold that property
- You never should have inherited any property
- You should never own a property abroad
- You should not be having any joint property
The property will be treated as the residential property of the buyer and they will be residing in it.
There are no commercial properties attached to it. For this, the Stamp duty is as follows:
PRICE OF PROPERTY
STAMP DUTY RATE
Up to £250,000 – 0%
Over £250,000 to £925,000 – 5%
Over £925,000 to £1.5 million – 10%
Over £1.5 million – 12%
In case you own some additional residential properties
PRICE OF PROPERTY
STAMP DUTY RATE
SDLT FOR ADDITIONAL PROPERTIES
Up to £250,000 – 0%
Over £250,000 to £925,000 5%
Over £925,000 to £1.5 million 10%
Over £1.5 million 12%
In case your property has commercial elements attached to it. The Stamp duties will be:
Price of Property
SDLT for Properties
£0–£150,000 – 0%
£150,001–£250,000 – 2%
£250,001 + – 5%
Please note: The above-mentioned SDLT is for England and Northern Ireland areas. The rates for the new property and not for the Buy to let properties. The above-mentioned SDLT is applicable from July 1, 2021. If you’re not a UK resident, but plan on buying a residential property in England or Northern Ireland, you will be asked to pay an extra 2% with the Stamp Duty rates with a valuation exceeding £40,000.
Who is eligible for Stamp Duty exemption?
There are few conditions where you can be exempted from Stamp Duty.
- If you are a first-time buyer and Your property price is below £300,000
- If you are a first-time buyer and Your property price is under £500,000 (you will pay the Stamp Duty on the amount over £300,000)
- If you have inherited the property, payment is done by someone else for a land or property transfer
- If you have bought a mixed property for less than £150,000
- If the property is moveable like a caravan etc.
When and how do you pay Stamp Duty?
You need to pay the stamp duty within 30 days of buying the property and submit the SDLT to HMRC. In most cases, it is done by a solicitor or agent on behalf of you. They generally charge a fee for filing the forms and paying the tax. You can do it by yourself, by filing the files to HMRC either by post or by the Online filing system. The Online system is pretty user-friendly and you can pay by using different online payments methods.
Please be informed, that even if you are eligible for Stamp duty exemptions, you have to submit the file to HMRC. And you will be fined if you delay submitting the file and tax for more than 30 days.
Can Stamp Duty be paid in installments or added to a mortgage?
No, Stamp Duty under the current system needs to be paid in a Lump sum to HMRC. You will have 30 days to fill the files and submit the SDLT to HMRC. Delay will cause penalties. Therefore, we suggest the customer include the stamp duty while saving for the deposit amount. We can help you to give the estimate on stamp duty amount.
The stamp duty can be included in the mortgage based on your lenders. But please be conscious since this will increase your mortgage amount by 2-3 % and hence the Loan to value (LTV) and the interest will also be increased. You will end up paying more due to the inclusion of Stamp duty in your mortgage. Hence, the best way to avoid this is to keep the Stamp duty amount in mind and keep it separate from the mortgage amount.
