The term stamp duty will probably sound familiar, and although you won’t need to know all the ‘ins and outs’ of stamp duty, it’s still important to understand what it is and how it’s going to affect you during your home buying journey. Keep reading to find out all you really need to know about stamp duty.
Can stamp duty be added to a mortgage?
Usually stamp duty is paid before you start your mortgage, up to 14 days after you've completed your new home purchase. Typically the solicitor or conveyancer will require you to pay them before your completion date and you are responsible for making sure it’s all submitted on time.
However, it is possible to add the stamp duty charges onto your mortgage. This will incur interest, just like your mortgage, but it means you can pay monthly rather than the upfront cost before moving into your home. This will depend on your mortgage lender, so it's important to check with your mortgage lender beforehand.
Can stamp duty be paid in installments?
It is not possible for you to pay your stamp duty in installments. Usually, you have 14 days after the date you completed the purchase of your home (completion day/the day you move in) to pay your stamp duty land tax.
If you don’t submit your stamp duty land tax return within the 14 days, you could be charged a penalty of up to £200, and charged interest on the amount you have to pay.
How is stamp duty calculated?
There isn’t one standard stamp duty charge for every house in the UK. Stamp duty has several rate bands, and how much you pay will be calculated on the part of the property purchase price falling within each band.
Here is an example of buying a home worth £275,000:
|On the first £125,000
|On the next £125,000
|On the final £25,000
Total Stamp Duty Land Tax payable: £3750
*Residential leasehold properties are charged differently.
So although it may sound like 'just another tax' to pay, the amount you'll be charged will depend on the property you buy. It's a good idea to find a stamp duty calculator online when you've found the home you'd like to reserve, so you can check your affordability before you reserve.
How does the stamp duty holiday work?
As part of his summer statement, Chancellor of the Exchequer, Rishi Sunak, stated that the Government will be increasing the threshold on properties exempt from Stamp Duty fees up to the value of £500,000, meaning that many homes will be much more affordable for buyers across the country. The aim is to boost the housing market, as well as to encourage and enable buyers to purchase their new home following the coronavirus pandemic.
If the property you're purchasing is your main residence and is under £500,000, you won't pay any stamp duty on it.
The stamp duty charged for properties over this amount will depend on the purchase price. Charges take into account the threshold and only the excess amount will be eligible to be taxed. Values from £500,001 to £925,000 will be taxed at 5%, while properties from £925,001 to £1.5 million will be taxed at 10%.
Homes over £500,000
||Stamp Duty Rate
|Up to £500,000
|£500,001 to £925,000
|£925,0001 to £1.5 million
|Above £1.5 million
Rates apply from July 8th to March 31st 2021.
How is stamp duty paid?
Usually, your solicitor will deal with your stamp duty and any payment due, although you can do it yourself. Although it could be your solicitor dealing with it, it’s still classed as your responsibility to ensure its paid on time.
You can send your stamp duty land tax return online or through the post. You can find out more about the ‘how’s, who’s and why’s’ of filling in your stamp duty land tax return on the Government website
What stamp duty will I pay?
The stamp duty you pay will depend on the value of your home. Although there is currently a stamp duty holiday running until 31st
March 2021, here is the eligibility for stamp duty for first time buyers, second steppers and shared ownership home owners.
First time buyer
If you’re buying your first home, you won’t have to pay any stamp duty unless your home is worth more than £300,000.
Stamp duty relief for first time buyers buying a house for £300,000 or less has been in place since November 2017.
If you’re a first time buyer and purchasing a home worth between £300,000 and £500,000, you’ll have to pay stamp duty land tax at 5% on the amount of the purchase price in excess of £300,000.
First time buyers who are purchasing a property for more than £500,000 will not be entitled to any relief and will pay stamp duty land tax at the normal rates.
If you’re buying an additional residential property over £40,000, you’ll have to pay an extra 3% in stamp duty on top of current rates.
*This increased rate doesn’t apply to caravans, mobile homes or houseboats.
Sometimes there is a delay in selling your previous home, which will affect the stamp duty you pay. If there is a delay in selling your previous home, you will have to pay a higher stamp duty rates as you will own 2 properties.
However, if you sell or give away your previous main home within 3 years of buying your new one, you can apply for a refund of the higher stamp duty land tax part of your stamp duty bill.
Shared Ownership homeowners
Since October 2018, first time buyers under shared ownership schemes can claim first-time buyers stamp duty relief on homes worth up to £500,000. If you purchased your home on or after 22nd November 2017, you’ll be eligible to claim back first-time buyers stamp duty relief.
What stamp duty do I pay on a second home?
If you decide to buy another home such as a buy-to-let home
or a holiday home, you will have to pay an extra 3% stamp duty.
The additional 3% applies to properties at and above the value of £40,000. Please note this doesn’t apply to caravans, mobile homes or houseboats.
If you'd like to chat about stepping on the property ladder or your mortgage, speak to our team here.