What is Stamp Duty and how does it work?

Author: Simon Ellis

Stamp duty is a tax on buying a house and it’s a major source of government income. Nowadays the rate at which stamp duty is charged goes up in increments depending on the value of the property you’re purchasing. In this way, it works a bit like income tax, with various thresholds after which you’ll have to pay more. Here we look at some of the most important characteristics of this levy on home ownership…

What are the stamp duty thresholds?

If the property you’re buying costs under £125,000, then you’ll pay no stamp duty at all. That’s because the first £125,000 of any purchase is exempt from the tax. From £125,000 up to £250,000 you’ll be charged stamp duty at 2%, while the amount from £250,000 up to £925,000 will attract a tax rate of 5%. Finally, properties with a purchase price over £925,000 will be charged a whopping 10% on any amount exceeding that figure.

What about first-time buyers?

First-time buyers are currently exempt from paying stamp duty up to a purchase value of £300,000. This is due to a government initiative aimed at helping more people get a foot on the property ladder. But be aware that this exemption is limited to properties sold for less than £500,000, which isn’t a problem for the vast majority of those who stand to benefit.

What about second homes and buy-to-let?

People buying property as a second home or buying to let are subject to a much tougher stamp duty regime. From 2016, buyers in this category have been charged 3% on the first £125,000, 5% on the next £125,000, and 8% on any more.

Stamp duty in context

Stamp duty was introduced to tax the wealthiest in society on their property purchases. However, rampant house price inflation over successive generations means the tax now hits an economic group who were never intended to pay it originally. Nevertheless, the rules have only ever been tweaked and not overhauled entirely, which some consider to be manifestly unfair. The absence of radical reform is most-likely down to the UK exchequer being heavily dependent on the revenue stamp duty generates for the country.

The Compass view of stamp duty

Simon Ellis from Compass said: “Unfortunately, there’s no way to get around stamp duty. If you want to complete on a property, then it must be paid unless you’re exempt. Tax breaks for first time buyers alongside the higher duty for multiple buyers seems reasonable in terms of the social utility, so these policies should be broadly supported. Importantly, those who wish stamp duty could be abolished altogether should be careful what they wish for… That’s because money that comes off taxes has a nasty habit of going on prices…”

You can find out more about personal finances and products that can help you support them, including loans and mortgages, by contacting us via phone or email now.

*All figures correct as of May 2019

Why not get in touch today?

For a friendly, confidential and without-obligation conversation

Get in touch

Your home may be repossessed if you do not keep up repayments on your mortgage.