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What is Stamp Duty and How Does it Work?

In the last year, stamp duty is a phrase we have heard quite often, with the government stamp duty holiday designed to boost the housing market and make buying a property more appealing. But what exactly is stamp duty land tax and how does it work?

What is Stamp Duty?

Stamp duty is a tax which applies to buying residential properties in England or Northern Ireland. Currently, stamp duty only applies to houses over a certain price.

If you are looking to buy a property in the UK before June 30th 2021, you will not need to pay stamp duty on any property costing up to £500,000. It doesn’t matter whether you’re a first-time buyer or previously owned a house, the stamp duty holiday is available to everyone buying in this price range. For houses over £500,000, the stamp duty rate is based on the value of the property over £500,000.

Then from 1st July until September 30th 2021, you will not have to pay stamp duty on residential properties costing up to £250,000. From 1 October, you will pay stamp duty on properties costing more than £125,000 for residential properties. Although rules for first time buyers are different.

For those who are looking to buy a second home, you will pay an extra 3% Stamp Duty on properties costing more than £40,000 at the relevant rate at that time.

How Expensive Will My Stamp Duty Be?

The amount of stamp duty you pay will depend upon the time at which you are buying. However, you can very simply use the rules stated above to calculate the amount of stamp duty you will pay on your property. Let’s use an example of somebody purchasing a property before June 30th 2021.

At this time buyers will not be paying any stamp duty on a property up to £500,000.

A property bought for £600,000, will incur stamp duty on £100,000 of the overall price.

£500,000 = 0% – No stamp duty

£100,000 = 5% – £5,000 in stamp duty.

The amount of stamp duty you will pay will be entirely dependent on your situation including how much your house costs, whether it is your second home or an investment property, whether you’re a first-time buyer and what time in the year you’re purchasing. This is something you can do more research on or ask your estate agent about, as they will be very knowledgeable on this subject.

How Are Stamp Duty Rules Different for First Time Buyers?

Up until 30th June 2021 the rules for first time buyers will be the same as everyone else, you won’t pay stamp duty tax on any property under £500,000, and any stamp duty tax you do pay will be on the property value over £500,000 only. However, from 1 July to 30 September 2021, first-time buyers will pay no stamp duty on properties costing up to £300,000, as well as receiving a discounted rate, up to £500,000.

When Do I Need to Pay My Stamp Duty?

You have 14 days to file a Stamp Duty Land Tax (SDLT) return and pay any SDLT due. If you fail to submit a return and pay the tax within 14 days, HMRC may charge you penalties and interest.

How Do I Pay Stamp Duty?

Generally, your solicitor will be the one to deal with your stamp duty return and any payments that are due for you. You can do it for yourself and either way you are responsible for making sure to submit on time. even if you will not need to pay stamp duty you still need to submit or return (unless you’re exempt).

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