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Stamp Duty Explained: Everything You Need to Know About Stamp Duty on Property in Central London

By Maurice Shasha  //  Mon 15th May 2023
Stamp duty rates in England and Northern Ireland have changed - find out how this will affect you if you are buying a home in central London.
Stamp Duty Explained

What is stamp duty?

Stamp duty, or Stamp Duty Land Tax (SDLT) is a tax you pay when buying a home in England or Northern Ireland. The amount you pay depends on:

  • the value of the property
  • whether you are a first-time buyer
  • whether or not this is your only property.

Stamp duty is payable by the buyer and not the seller, and usually, the buyer's solicitor will arrange for the payment to be made to HMRC by the required deadline.

How much is stamp duty?

From 23rd September 2022, the government introduced changes to the stamp duty rates in England and Northern Ireland.

The changes to the stamp duty rates include an increase in the threshold for paying no stamp duty on property purchases. Previously, no stamp duty was due on the first £125,000 of the property. This threshold has been increased to £250,000.

From September 2022, the following stamp duty rates apply for those replacing a primary residence (not first-time buyers):

  • Up to £250,000 - 0%
  • £250,001 to £925,000 - 5%
  • £925,001 to £1,500,000 - 10%
  • £1,500,001 or over - 12%

How do I calculate my stamp duty bill?

Stamp duty is calculated according to the portion of the property price that falls into each band.

For example, if you purchase a property in central London for £750,000 you will pay:

  • 0% on the first £250,000 = £0
  • 5% on the remaining £500,000 = £27,500
  • Total stamp duty = £25,000

You don't have to worry about doing the maths yourself, as there are handy stamp duty calculator tools, including the one on the government website. Try the Stamp Duty Land Tax Calculator tool to determine how much stamp duty you will need to pay based on your details.

Do I qualify for first-time buyer relief?

First-time buyers in England and Northern Ireland benefit from tax relief on stamp duty. No stamp duty is payable on the first £425,000 on properties costing up to £625,000. The portion between £425,000 and £625,000 has a 5% stamp duty rate. Properties over £625,000 have no stamp duty relief and you will pay stamp duty at the normal rates.

For example, if you qualify as a first-time buyer and are purchasing a property for £600,000 you will pay:

  • 0% on the first £425,000 = £0
  • 5% on the next £175,000 = £8,750

You will be considered a first-time buyer if you have never owned residential property in the UK or abroad. If you are buying with a partner, you must both be first-time buyers to qualify. The 'buyer' part is slightly misleading. If you have inherited or been gifted property in the past, you won't be eligible for this tax relief.

If you are a first time buyer, read our blog article for more tips on how to buy a flat in central London.

What if I am buying a second home or buy-to-let property?

If you are buying a second home or a buy-to-let property, you must pay a 3% surcharge on top of the standard rates outlined above.

The following stamp duty rates apply for second-home buyers and buy-to-let landlords:

  • Up to £250,000 - 3%
  • £250,001 to £925,000 - 8%
  • £925,001 to £1,500,000 - 13%
  • £1,500,001 or over - 13%

If you bought your new home before selling your previous one, you would still need to pay this 3% levy. However, if you sell your previous main home within three years and the additional home is now your main one, you can claim a refund of the 3% surcharge you paid.

What if I'm not a UK resident?

Non-UK residents buying property in England and Northern Ireland are subject to an additional 2% on top of the regular rates. Non-UK residents purchasing an additional property must pay both the second home surcharge and the overseas resident surcharge, effectively increasing the rates by 5%. A non-UK resident, for the purposes of stamp duty rates, is someone not present in the UK for at least 183 days during the 12 months before their purchase.

Can I avoid stamp duty?

There are some circumstances where stamp duty is not required to be paid, such as if you inherit a property or if ownership is transferred to you as a result of a divorce settlement. 

Haggling the price of the property to factor in any costs for repairs that come up in the survey can help you to reduce stamp duty. If the property price is just above a stamp duty threshold, you could negotiate the price to below the threshold to avoid paying stamp duty. 

It is also worth noting that stamp duty does not apply to moveable furniture and fittings you are buying from the previous owners. This would include freestanding furniture, carpets and curtains but exclude anything attached to the building, like bathroom and kitchen fittings and built-in cupboards. You can subtract the price you paid for moveable items from the property's purchase price before calculating stamp duty. Do not be tempted to exaggerate these items' prices to reduce your stamp duty bill. HMRC conduct regular spot checks and will require you to justify the value of the fixtures.

Can I claim back stamp duty?

In some circumstances, you may be able to claim back the stamp duty you have paid as a surcharge on additional properties. For example, if you bought a new home before selling your previous one, you can claim back the 3% surcharge you paid if you sell your former primary residence within three years. Your solicitor should be able to tell you how to claim your refund if you sell your previous residential property.

Can I add stamp duty to my mortgage?

Yes, borrowing more on your mortgage to cover stamp duty is usually possible if you do not have the funds readily available to pay it. However, this will depend on how much your mortgage provider is willing to lend to you. It could also mean paying a higher interest rate if the extra money borrowed increases the loan-to-value.

When do I pay stamp duty?

You have 14 days from completion to pay any stamp duty that is due. Usually, your conveyancing solicitor will do this for you, having collected the money from you in advance.  

If you are looking at a property purchase in central London, contact Plaza Estates. We can show you our current selection of properties and advise you about stamp duty and other aspects of your house purchase.

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