What is Stamp Duty - Your Questions Answered

 
22/01/2025

Buying a property comes with its fair share of costs, and Stamp Duty Land Tax (SDLT) is one of the biggest you'll encounter.

 

At Lux Homes Estate Agents, we believe in making the complex simple, so we've answered as many questions as we can to help you understand everything you need to know about Stamp Duty,  whether you're a first-time buyer or a seasoned property investor

What is Stamp Duty?

Stamp Duty Land Tax (SDLT) is a tax you pay when purchasing property or land in England and Northern Ireland. Think of it as the government's way of taking a slice of property transactions. While it might not be the most exciting part of your property purchase, understanding SDLT is central for budgeting your next move correctly.

How is Stamp Duty Calculated?

Stamp Duty works on a tiered system, similar to income tax. The amount you'll pay depends on various factors, including the property's purchase price and whether you're a first-time buyer, home mover, or investor.


Current rates until April 2025:


  • £0 - £250,000: 0%

  • £250,001 - £925,000: 5%

  • £925,001 - £1.5 million: 10%

  • Over £1.5 million: 12%

From April 2025, the rates will change to:


  • £0 - £125,000: 0%

  • £125,001 - £250,000: 2%

  • £250,001 - £925,000: 5%

  • £925,001 - £1.5 million: 10%

  • Over £1.5 million: 12%

These changes were made in the recent budget so worth understanding.

Who Pays Stamp Duty?

Anyone purchasing residential property or land over the minimum threshold in England and Northern Ireland must pay Stamp Duty. However, various factors affect whether you need to pay and how much, including your buyer status and the property's purpose.

When is Stamp Duty Paid?

Time is of the essence when it comes to Stamp Duty. You must pay within 14 days of completing your property purchase. Your solicitor typically handles this payment as part of the conveyancing process, ensuring you meet the deadline and avoid any penalties.

Can Stamp Duty be Added to a Mortgage?

While it's technically possible to add Stamp Duty to your mortgage, it's not always the smartest move. Adding it to your mortgage means you'll be paying interest on the tax over the life of your loan. We recommend saving for this cost separately if possible to avoid increasing your long-term debt.

Can Stamp Duty be Paid in Installments?

The straight answer? Officially, no - HMRC requires Stamp Duty to be paid in full within 14 days of completing your property purchase as we mentioned earlier. Although, while there's no government-approved installment plan, there are several ways to manage this cost effectively.


Some buyers choose to take out a short-term loan with a clear repayment plan, use a 0% credit card, or borrow money from family members. But, if you can save enough to cover the stamp duty costs alongside other funding sources, this is probably the best choice. 


Planning ahead is key - the more time you have to prepare, the more options will be available to you.

Stamp Duty for First-Time Buyers

Great news for first-time buyers! Special relief means you can save significantly on Stamp Duty when purchasing your first home. Currently, you won't pay any Stamp Duty on properties up to £425,000, and you'll get a discount on properties up to £625,000.


To qualify, you must:


  • Never have owned property anywhere in the world

  • Be buying a property under £625,000

  • Use it as your main residence

  • If buying jointly, all buyers must be first-time buyers

From April 2025, while the thresholds remain the same (£0 up to £425,000), there are some changes to consider:


  • Properties between £425,001 - £625,000 will still pay 5% on the portion above £425,000

  • For properties over £625,000, you'll now pay the standard rates with no relief available

  • The maximum potential saving will be £11,250 compared to standard rates

For example, if you're buying a £500,000 property, you'll only pay 5% on £75,000 (the portion between £425,000 and £500,000), resulting in £3,750 in Stamp Duty – a significant saving compared to standard rates.

Do You Pay Stamp Duty on a Second Home?

Yes, and be prepared to dig deeper into your pockets! When buying an additional property for any purpose - whether it's a holiday home, a property for your children, or an investment - you'll pay a 3% surcharge on top of standard rates.

 

This means if you're buying a second property for £400,000, you'll pay significantly more than your first home purchase. The surcharge applies even if your other property is overseas, so keep this in mind when planning your property portfolio.

Stamp Duty Buy-to-Let

Buy-to-let investments come with their own Stamp Duty considerations. Like second homes, they incur the 3% surcharge, but there are some strategic aspects to consider.

 

For larger investors, Multiple Dwellings Relief might help reduce the tax burden when buying multiple properties in one transaction.

 

Companies purchasing buy-to-let properties might also face different rates if they qualify as a property trading company.

 

If you're planning to build a rental portfolio, timing your purchases and understanding these nuances could lead to substantial savings.

Stamp Duty Freehold vs Leasehold

Both freehold and leasehold properties are subject to Stamp Duty, but there are some differences. When buying a new lease, you might pay SDLT on the purchase price of the lease and sometimes on the ground rent if it's substantial.

Do You Pay Stamp Duty on Commercial Property?

Yes, but commercial property has its own rates and thresholds:


  • £0 - £150,000: 0%

  • £150,001 - £250,000: 2%

  • Over £250,000: 5%

To work out what you may owe in this handy Stamp Duty calculator can help.

Is There Any Stamp Duty Relief?

Looking to save on Stamp Duty? Several relief schemes could significantly reduce your tax bill. First-time buyer relief is the most well-known, offering no Stamp Duty on properties up to £425,000 for those buying their first home anywhere in the world.


  • Multiple dwellings relief (MDR) - This is particularly valuable for those buying more than one property in a single transaction. This relief can substantially reduce your tax bill by allowing you to pay Stamp Duty on the average property value rather than the total amount.

  • Building company relief supports property developers and traders who buy properties as part of their trading stock, while registered social landlord relief helps qualifying organizations providing social housing. Charities also benefit from relief when purchasing properties for charitable purposes.

  • Transferring property between spouses as part of a divorce settlement - Marriage/civil partnership relief might apply, with no time limit for claims. Most recently, the government has introduced additional temporary reliefs to stimulate the property market, so it's worth checking the latest updates.

Remember, these reliefs aren't automatic – you'll need to claim them on your Stamp Duty return. We recommend consulting with a tax professional or your solicitor to ensure you're claiming everything you're entitled to.

Common Stamp Duty Mistakes to Avoid

One crucial topic often overlooked is the potential pitfalls when calculating Stamp Duty. Common mistakes include:


  • Misunderstanding mixed-use property rates

  • Failing to claim available reliefs

  • Incorrect calculations for shared ownership properties

  • Missing the 14-day payment deadline

Looking Forward

While Stamp Duty might seem complex, understanding these basics will help you budget effectively for your next property purchase. 


We're always here to guide you through the process and ensure you're making informed decisions about your property journey. Stamp Duty is one of those things that is never set in stone so being aware of any upcoming changes is important when purchasing a home.


 
« Back to Blog