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What are the Tax Implications When Buying and Selling a House

By Maurice Shasha  //  Mon 1st March 2021
In this article, we look at some of the taxes involved in buying and selling a property in England.
Stamp duty for 'live-in' buyers and buy-to-let buyers
There are three types of taxation that you may be liable to pay when buying to selling property. The most common of these is Stamp Duty Land Tax payable when you buy a property. The other two types of tax on property are payable in certain instances when a property is sold; these are Capital Gains Tax and Inheritance Tax. 

Buying your home 

The tax you pay when you buy a property is officially known as Stamp Duty Land Tax (SDLT), or more commonly known as stamp duty. 

Stamp Duty Land Tax 

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.   

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. 

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. 

If you are buying your main residence… 

If you are buying the property as your main residence, the following stamp duty rates apply on property purchases completed on or before 31st March 2021. 

  • Up to £500,000 – 0% 
  • £500,001 to £925,000 – 5% 
  • £925,001 to £1,500,000 – 10% 
  • From £1,500,001 – 12%  

From 1st April 20021 the old rates will apply: 

  • Up to £125,000 – 0% 
  • £125,000 to £250,000 – 2% 
  • £250,001 to £925,000 – 5% 
  • £925,001 to £1,500,000 – 10% 
  • From £1,500,001 – 12%  

To clarify how much stamp duty you will pay on the house you buy, we have given some examples below. 

£450,000 you will pay £0 up to 31st March 2021 and £6,500 from 1st April 2021 

£800,000 you will pay £15,000 up to 31st March 2021 and £6,500 from 1st April 2021 

£1,400,000 you will pay £68,750 up to 31st March 2021 and £76,250 from 1st April 2021 

£2,000,000 you will pay £138,750 up to 31st March 2021 and £146,250 from 1st April 2021 

£5,000,000 you will pay £498,750 up to 31st March 2021 and £506,250 from 1st April 2021 

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. 

If you are buying a second or additional property… 

In April 2016, the government imposed a 3% surcharge on each band for additional properties, no allowance is made on the initial £125,000. 

At first glance, 3% does not seem a huge amount, but the examples below illustrates the increase in stamp duty you will pay on buying a second property. 

£450,000 you will pay £13,500 up to 31st March 2021 and £20,000 from 1st April 2021 

£800,000 you will pay £39,000 up to 31st March 2021 and £46,500 from 1st April 2021 

£1,400,000 you will pay £110,750 up to 31st March 2021 and £118,250 from 1st April 2021 

£2,000,000 you will pay £198,750 up to 31st March 2021 and £206,250 from 1st April 2021 

£5,000,000 you will pay £648,750 up to 31st March 2021 and £656,250 from 1st April 2021  

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. 

If you are an oversees buyer… 

Draft legislation published in July 2020 confirms that from 1st April 2021 buyers of residential property in England and Northern Ireland who are not resident in the United Kingdom will have to pay an extra 2% levy on all stamp duty rates. 

If you are a first-time buyer… 

Outside the stamp duty holiday period, first-time buyers purchasing a property costing £500,000 or less 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. 

Read more in our article on Stamp Duty Land Tax

Selling your home 

When you sell (or transfer the ownership of) a property, you may be liable for Capital Gains Tax or Inheritance Tax. 

Capital Gains Tax 

Capital Gains Tax is only applicable if you are selling a property that is not your primary residence.  

You do not pay Capital Gains Tax on the entire sales value of the property, only on the amount that is counted as gains. The tax rates vary depending on which tax band you are in. 

If you are in the basic tax band, you will pay 18% CGT on any profits from your sale. If you are in the higher tax band, you will pay 28%. 

To work out how much CGT you will have to pay when selling, first calculate the gain by deducting the amount you originally bought the property for from the sale price. You can also deduct buying and selling costs, such as legal fees and stamp duty, as well as the cost of any improvements to the property – but costs associated with general upkeep can’t be deducted. 

Gains = Purchase Price – (Sale Price + Buying & Selling Costs + Improvement Costs) 

To calculate how much GCT you will need to pay, deduct your annual GCT allowance from your gains, you must pay Capital Gains tax on this amount. 

Add this amount to your taxable income to determine whether you pay the lower or higher rate of CGT. 

For more detailed information, read our blog ‘How To Minimise Capital Gains Tax (CGT) On Buy To Let Property’. 

Inheritance Tax 

Inheritance tax may be payable if the property belongs to someone who died.  

The Inheritance Tax rate is 40% and is payable on the part of the estate above the £325,000 threshold. If the property’s ownership is being transferred to the deceased’s children, the tax-free threshold increases to £500,000. 

If the property’s ownership is being transferred to a spouse, civil partner or charity, there is no Inheritance Tax to pay. 

The website has more information on the reliefs and exemptions to inheritance tax. 

We can help 

If you are buying or selling a property in central London, our experienced sales team are on hand to help you will all aspects of the transaction. Get in touch today. 

Offices at

Marble Arch
29 Edgware Road
W2 2JE
f: 020-7258-3090
34 Beauchamp Place
f: 020-7581-7005