Stamp Duty: What is it, how does it work, and what do the recent changes mean for you?

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You may have seen the recent headlines about changes to stamp duty, as part of the new chancellor’s mini-budget. But what exactly is stamp duty, and when do you have to pay it? The answer is, it depends. Stamp duty can vary depending on the purchase price of the property, whether or not you’re a first-time buyer, and where you live in the UK. When you purchase a property, it’s part of the expenses involved beyond the initial cost of the property itself, which can also include conveyancing fees, moving costs and insurance. So, how does it work?

Stamp duty is a tax levied by the government on the sale of any residential property or land within the UK. While the system is UK-wide, there are differences in how it works in both Wales and Scotland. It begins with the name, which is ‘stamp duty’ only in England and Northern Ireland; in Wales it’s called ‘land transaction tax,’ while in Scotland it’s ‘land and buildings transaction tax’. 

Stamp duty on a property is calculated as a percentage of the purchase price, once that price reaches a certain level (the percentage increases when you purchase a secondary residence). While there is 0% stamp duty on primary residence purchases within England and Northern Ireland up to £250,000, in Wales it is 0% only up to properties costing £180,000, while in Scotland it is 0% on properties up to £145,000 in price. 

Confused yet? But wait, there’s more.

First-time buyers (defined as those purchasing their first primary residence*) in England and Northern Ireland don’t have to pay stamp duty on purchases up to a rather generous £425,000 (providing the property costs less than £625,000). This is part of the new budget – prior to that, 0% was only payable on properties up to £125,000, while first-time buyers were only exempt on properties costing up to £300,000. The Chancellor estimates that another 200,000 purchasers will now be exempt from paying stamp duty. Compare this to Scotland, where first-time buyers only get stamp duty relief for purchases up to £175,000, and Wales, where there is no additional stamp duty relief for first time buyers at all.

*Note: You are not considered a first-time buyer in terms of stamp duty if you have owned or part-owned a property in the UK or overseas, even if you’ve never lived in said property. 

So, how does this actually work in practice? When you purchase a property in England or Northern Ireland, and are liable for stamp duty, you have 14 days from the date of completion to pay. In Scotland and Wales, it’s 30 days. While it is legally your responsibility to make sure stamp duty is paid, it is often handled by your solicitor as part of the conveyancing process.

So, how do you get to be one of the lucky few paying 0%? Once again, it depends where you live, and the type of property you want to buy. In Birmingham, average house prices have stayed around £235,000 for the past year, below the new threshold of £250,00. However, prices have risen 14% since 2019, and this rise is projected to continue, with some analysts saying they may grow by as much as 26% over the next three years, taking the average house price over the new tax threshold, unless you’re a first time buyer. 

Buying a home is probably the biggest investment you’ll make in your lifetime, so it’s worth taking advantage of any opportunity to save money. As prices continue to rise against the backdrop of an unsteady pound and jobs market, the reduction in stamp duty will, hopefully, help more buyers get onto the housing ladder. 

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