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A simple guide to stamp duty

Harriet Meyer / 10 June 2015 ( 14 February 2020 )

Whether you are buying, selling or downsizing, Harriet Meyer explains the stamp duty rules.

A house for sale
The cost of stamp duty can add up to thousands of pounds

Swapping family homes for something smaller and more manageable at retirement is a common trend. You may also choose to move to a smaller property to reduce your household bills, such as energy and council tax.

Yet during this process, the cost of stamp duty can add up to thousands of pounds and wipe out a portion of any profit you make. When downsizing, every penny counts. You need a secure retirement income, so check how big a hole this tax will burn in your pocket.

There have been calls to scrap this tax for those downsizing but currently it’s still an important cost to factor into any move.

Please note: A higher rate of stamp duty applies to the purchase of second homes and additional properties. Read more here.

What are the rules?

The amount is tiered, like income tax. Put simply, you don’t pay any stamp duty on the first £125,000. You pay 2% on the portion up to £250,000, and 5% on the portion up to £925,000. Then, up to £1.5 million, the rate is a massive 10%, or 12% on anything over this sum.

How does this work in practice?

Let’s take an example of a £180,000 property purchase. You’ll pay no tax on the first £125,000, then 2% on the remaining £55,000. This gives a total bill of £1,100 for stamp duty alone.

In comparison, you’ll pay more on a £300,000 property. In this case, you’ll pay nothing on the first £125,000, then 2% on the next £125,000. This totals £2,500, with a further 5% payable on the final £50,000, giving a total bill of £5,000.

Unfortunately, you can’t avoid paying stamp duty unless you buy a home for under £125,000. If the property you want to buy is slightly more than the stamp duty threshold, you could ask the seller if they’d accept a lower price to bring costs down.

To find out the impact of stamp duty on your purchase, you can use one of the many online calculators. For example, the Money Advice Service has a simple one. 

How does it impact on selling your existing property?

Buyers pay out for stamp duty, not sellers. So if you’re selling your home and not buying another one, you don’t need to worry about paying this tax.

However, if your house is valued at just above £125,000, you may want to market it for slightly less to attract buyers eager to avoid stamp duty.

Stamp duty rates on second homes

Parents who help their son or daughter buy a first home could end up lumbered with a tax penalty, adding thousands of pounds to the cost.

They are just one of the groups who are caught by the higher rate of Stamp Duty Land Tax (SDLT) which applies when someone buys an additional home.

The law was designed to raise tax from buy-to-let landlords and people who bought a second home. But many other groups have been caught out by it, including parents who help a son or daughter by becoming joint owners of their child’s home, and those who buy a second property to be closer to their place of work.

How much are these higher stamp duty rates on second homes?

The higher rates of SDLT imposed back in April 2016 added thousands of pounds to the cost of a second home. If the price is £150,000, normal SDLT is just £500. But the tax on a second home is ten times as much – £5000. 

On more expensive property the difference is much bigger. Someone buying a half million pound home would pay £15,000 on a first home but double that – £30,000 – if it is their second property. The tax on additional homes adds 3% to the standard rates.

SDLT applies in England, Wales, and Northern Ireland. In Scotland a similar tax applies called Land and Buildings Transaction Tax (LBTT). That also has higher rates for second homes called Additional Dwelling Supplement. LBTT is higher than SDLT for any home – first or second – which costs more than £333,000.

More information and tax calculators

For more information on SDLT in England, Wales and Northern Ireland, click here. 

For more information on LBTT in Scotland, click here.

Read our quick fixes to help sell your property

Next article: 10 things you should know before your house goes on the market >>>


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The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.