Stamp Duty

What is Stamp Duty?
How Much Does Stamp Duty Cost?
How Do I Pay Stamp Duty?
Adding Stamp Duty to Your Mortgage
Why Stamp Duty is an Odd Tax
Stamp Duty Calculator

What is Stamp Duty?

Stamp duty, or stamp duty land tax, is the tax that the government charges people to buy a property. This tax is charged every time you buy a different property and so could make moving house very expensive!

How Much Does Stamp Duty Cost?

The amount you pay to the tax man for buying your property depends only on the value of the property. Before March 2012 first time buyers paid no stamp duty on properties worth £125,000 to £250,000. Sadly, this is not the case anymore.
The size of stamp duty you will pay are detailed in this table:

For example:
If you buy a house for £300,000 then the cost of stamp duty is 3%, as detailed above. This 3% is charged on the value of the house, in this case £300,000. So as the buyer, you would need to pay 3% of £300,000 = £9000. As you can see, stamp duty can be an expensive tax so make sure you take this into your calculations when working out what you can afford.

How Do I Pay Stamp Duty?

Your solicitor should guide you through this process. Make sure you ask them what you need to do in order to pay.
From the date of completion, you have 30 days to pay stamp duty, or you may face a fine. You will need to pay the amount to HMRC by one of the following ways:
- BACS Transfer
- Debit Card
- Credit Card
- Giro
- Cheque at the Post Office
- Cheque in the Post

See HMRC’s website for more details

Adding Stamp Duty to Your Mortgage

Often, stamp duty can be added to your mortgage. You need to speak to your mortgage provider or mortgage broker to find out if you are able to do this. However, think very carefuly before doing this as adding it to your mortgage can be very costly. This is for two reasons:

Interest is Charged
Adding stamp duty to your mortgage means you are effectively taking out a loan to pay this tax. As mortgages tend to be for long periods of time (25 years is common), it will take this long to pay off your stamp duty at a cost of 25 years interest.

Your Loan to Value Ratio may be Affected
Adding stamp duty to your mortgage means that you are borrowing more but the value of the property stays the same. This will increase your loan to value ratio and may tip you into another LTV band with your provider. For example if you buy a £300,000 property and have a £33,000 deposit then the loan to value ratio is 89% and you could get an 90% LTV mortgage. However, if you add stamp duty onto the mortgage at a cost of £9,000, then you need to borrow £276,000 on a £300,000 property giving you a loan to value ratio of 92%. You would then not be eligible for the 90% LTV mortgage from your provider and may have to take their more expensive 95% mortgage.

Why Stamp Duty is an Odd Tax

Stamp duty is one of the strangest taxes the UK has. The oddness is not with charging tax on people who purchase a property but on the way it is charged. If you buy a property for £250,000 then you are charged £2,500 in stamp duty (1%). If however you buy a property for a penny more, £250,000.01 then you are charged £7,500 in stamp duty (3%). So for a purchase price of an extra penny, it costs you an extra £5,000 in tax! Many other taxes don’t work this way, you are only charged the higher rate on the amount above a certain limit of the property price. Because of this, if you are buying a property near one of the stamp duty thresholds, haggling the price under it, could save you a small fortune!