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Stamp Duty Explained - Everything you need to know about Stamp Duty in the UK

By Maurice Shasha  //  Tue 20th October 2020
In the summer statement on 8th July 2020, chancellor, Rishi Sunak, introduced a temporary stamp duty holiday on transactions of up to £500,000. This stamp duty holiday will last until 31st March 2021.
Stamp Duty Explained

Stamp Duty Explained - Everything you need to know about Stamp Duty in the UK

Central London property will always be desirable, however it does come with a large price tag. The average cost of a flat in Paddington is currently around £1million. If you’re paying this amount for a property, the associated bill for stamp duty will be substantial too.

Anyone looking to purchase property in central London should understand how the stamp duty land tax works and how much they are likely to pay. Here we have put together a complete guide to stamp duty, whether you’re moving to a new house, buying a home for the first time or looking to purchase a second property.

What is stamp duty?

Stamp Duty Land Tax (or SDLT) is a one-off tax that must be paid when you buy a property or land that costs more than a set threshold in England and Northern Ireland.

In the summer statement on 8th July 2020, chancellor, Rishi Sunak, introduced a temporary stamp duty holiday on transactions of up to £500,000. This stamp duty holiday will last until 31st March 2021.

Previously, the threshold at which homebuyers started paying stamp duty was set at £125,000.

In April 2016, the government imposed an extra 3% stamp duty surcharge on second property purchases. Outside the stamp duty holiday period, different rules apply for first-time buyers purchasing a property costing £500,000 or less.

How Much Will I Pay?

Stamp duty rates vary depending on the purchase price of the property. There are several rate bands for Stamp Duty. The tax is calculated on the part of the property purchase price falling within each band.

The table below show the stamp duty rates which will apply to property purchases completed by 31st March 2021.

Property Value 

SDLT Rates 

Up to £500,000 

0% 

£500,001 - £925,000 

5% 

£925,001 - £1,500,000 

10% 

From £1,500,001 

12% 


Rightmove puts the average price of properties in Paddington at approximately £1,364,000 over the last year. If you buy a property for this amount for before 31st March 2020 as your main residence, you will pay the following in Stamp Duty:
  • 0% on the first £500,000 (£0)
  • 5% on the amount between £500,001 and £925,000 (£21,250)
  • 10% on the remaining £438,999 (£43,900)
  • Total SDLT = £65,150
You can use the HMRC’s Stamp Duty Calculator to work out how much stamp duty you’ll have to pay on your property purchase.

From 31st March 2021 the old rates will apply:

Property Value 

SDLT Rates 

Up to £125,000 

0% 

£125,000 - £250,000 

2% 

£250,001 - £925,000 

5% 

£925,001 - £1,500,000 

10% 

From £1,500,001 

12% 

 First-Time Buyers’ Relief

Outside the stamp duty exception period, first-time buyers in England and Northern Ireland benefit from tax relief on stamp duty.

First-time buyers purchasing a property worth up to £500,000 pay 0% SDLT on the first £300,000 and pay 5% on the portion between £300,001 and £500,000. First time buyers purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT at the standard rates.

Stamp Duty on second homes

From 1 April 2016 stamp duty rates rose higher for buy-to-let investors and second home owners in England, Wales and Northern Ireland who must pay an extra 3% stamp duty on each band, no allowance is made on the initial £125,000. This extra charge also applies to overseas buyers.

If you buy a new primary residence, but there’s a delay in selling your previous primary residence, you’ll have to pay the higher Stamp Duty rates as you’ll now own two properties. However, you may be able to get a refund if you sell your previous main home within 36 months.

The table below show the stamp duty rates for second homes applicable to property purchases completed by 31st March 2021.

Property Value 

SDLT Rates 

Up to £500,000 

3% 

£500,001 - £925,000 

8% 

£925,001 - £1,500,000 

13% 

From £1,500,001 

15% 


If you were buying the property in Paddington (purchase price of £1,364,000) as a second home or a buy-to-let investment then the cost of the stamp duty would be:
  • 3% on the first £500,000 (£15,000)
  • 8% on the amount between £500,001 and £925,000 (£34,000)
  • 13% on the remaining £438,999 (£57,070)
  • Total SDLT = £106,070
From 31st March 2021 the old rates for second homes will apply:

Property Value 

SDLT Rates 

Up to £125,000 

3% 

£125,001 - £250,000 

5% 

£250,001 - £925,000 

8% 

£925,001 - £1,500,000 

13% 

From £1,500,001 

15% 

When is Stamp Duty not payable?

There are some circumstances when stamp duty is not payable.

In the event of divorce or separation, there is no stamp duty to pay on a property being transferred to your ex-spouse or partner. If you transfer the title deeds of your house to someone else, either as a gift or in your will, they won’t have to pay stamp duty on the market value of the property.

However, if you exchange properties with another person, you will each have to pay Stamp Duty on the property you receive based on its market value.

Can I Reduce the Stamp Duty I Pay?

If the vendor includes items such as wardrobes, carpets and white goods (these are called moveables) in the sale price you can arrange to buy these for a reasonable price and deduct the cost from the purchase price. Your conveyancing solicitor will advise you about this.

If the price is only just within a higher band, you could ask the seller or estate agent if they would accept a slightly lower price.

What If I’m An Overseas Buyer?

The stamp duty surcharge for overseas buyers was announced in the October 2018 budget and was the subject of consultation during 2019. Draft legislation published in July 2020 confirms that an extra 2% levy will be added to all stamp duty rates for non-UK resident homebuyers. This surcharge will take effect from 1st April 2021.

How To Pay Stamp Duty Land Tax

You have 14 days from completion date to file your stamp duty return and pay (previously the time limit was 30 days). If you don’t pay in time, you could be fined.

In most cases, the solicitor carrying out your conveyancing will pay the tax on your behalf at completion and add the amount to their fees. They’ll also claim any relief you’re eligible for, such as if you’re a first-time buyer. However, it is your responsibility to ensure that the stamp duty is paid.

If you are looking to buy property near Paddington, contact Plaza Estates. We can advise you about stamp duty as well as other aspects of your house purchase and show you our current selection of properties.
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