Stamp Duty 2016: Rates, Rules & Buy-to-Let Changes

If you're buying a property in the UK, Stamp Duty is likely to be one of the biggest upfront costs you face. Adding £4,400 to your costs when buying a £288,000 average priced home, it's hard to ignore – but do you understand how this unpopular tax works?

There's also a change coming in 2016. From 1 April, anyone buying more than one property – such as buy-to-let investors – will face higher rates. This applies to couples as well as individuals: find out more below.

What Stamp Duty rates will you have to pay? Are there times when you won't pay Stamp Duty at all? This guide seeks to answer all your questions. Here are the main points we'll cover:

What is Stamp Duty Land Tax?

The term “Stamp Duty” actually describes a range of different taxes that apply to the transfer of property. For example, you pay a version of Stamp Duty on some share transfers.

The kind we're concerned with here applies to buying property and land, and is called Stamp Duty Land Tax (SDLT). It applies when you buy land or property in England, Wales and Northern Ireland.

In Scotland, Stamp Duty powers have been devolved. Since April 2015 the Scottish equivalent of Stamp Duty is called Land and Buildings Transaction Tax (LBTT). At present there are no plans to introduce higher rates for second homes and buy-to-let. Skip to the LBTT rates.

How much Stamp Duty will you pay?

The table below shows the rate of Stamp Duty Land Tax payable when you are buying property in England, Wales or Northern Ireland.

  • The standard rate is what you'll pay if you're a first-time buyer, or buying a new property to replace the one you currently live in.
  • If you already own a property and you're not replacing your main residence – for example, if you're acquiring a buy-to-let property – the new higher rate will apply. We cover the rules on this below.

Stamp Duty Rates in England, Wales & Northern Ireland: standard (residential) and higher (additional property, buy-to-let) rates

Scottish LBTT rates

IF the property you're buying is in Scotland, Land & Buildings Transaction Tax (LBTT) applies. It has slightly different bands and rules from Stamp Duty Land Tax.

The table below shows the rate of LBTT payable on residential properties:

For non-residential property, different rates and bands apply:

Scotland's Land & Buildings Transaction Tax: Rates for non-residential property

The new higher rates of SDLT introduced in April 2016 will not apply to LBTT in Scotland – there are no current plans to introduce a similar system..

How is the amount you pay calculated?

For both SDLT and LBTT, the rate thresholds work similarly to the way Income Tax works. You only pay the rate of tax on the value of the property above the threshold.

For example, if you bought a property worth £250,000 in England, you would pay nothing on the first £125,000, and 2% tax on the remaining £125,000 – so you would pay £2,500 in SDLT.

If you bought a property worth £300,000, you would pay nothing on the first £125,000, 2% on the next £125,000 (£2,500) and 5% on the remaining £50,000 (£2,500) bringing your total payable SDLT to £5,000.

Who will pay the new higher rate of Stamp Duty?

The new higher rate is set at 3% above the standard rate. According to the government's website, it will apply to “most purchases of additional residential properties in England, Wales and Northern Ireland where, at the end of the day of the transaction, individual purchasers own two or more residential properties and are not replacing their main residence”. Remember that there will be no Stamp Duty to pay on properties worth less than £40,000.

The diagram below shows when the new rate will apply:

Stamp Duty on buy-to-let: how it works

If you're buying a second residential property and your purchase completes on or after 1 April 2016, you're looking at the higher rates as outlined above.

However, if you don't currently own any property (for example, if you're renting) the higher rate won't apply – whatever you intend to use the property for. The higher rate only applies if you already own at least one property, and aren't replacing your main residence with the new purchase.

The government has made it clear that married couples will be treated as one unit for the purposes of Stamp Duty. For example, if you're married and your partner owns a property but you don't, you will have to pay the new higher rate if you buy a property. This closes the obvious loophole of owning properties in different names.

Here are some examples to illustrate how this will work:

  1. You rent your home and own a buy-to-let property. You sell it and purchase another buy-to-let. At the end of the day of the transaction you own one property, so you will not pay the higher rates of Stamp Duty.
  2. You're a buy-to-let investor with 10 residential properties in your portfolio, and you own your home. You decide to sell your home and purchase a new one. At the end of the day of the transaction, you own 11 properties.However, as you have replaced your main residence you will not pay the higher rates of Stamp Duty.
  3. You own your home as well as a buy-to-let property. You sell your buy-to-let property and purchases another. At the end of the day of the transaction you own two properties, and the new property hasn't replaced your main residence, so the higher rates of Stamp Duty will apply.

Ways to avoid the higher Stamp Duty rates

An extra 3% in Stamp Duty will mean a significant outlay when you make a purchase. Combined with changes to buy-to-let tax relief announced in 2015, many landlords could find themselves out of pocket. If you are not deterred from investing in buy-to-let property, here are three ways you might be able to lessen the impact of the new tax:

  • Beat the deadline. If you want to make a buy-to-let purchase in the near future, make sure you complete before 31 March.
  • Consider becoming a company. If you invest in buy-to-let through a company, you can claim tax relief on your costs, just like with any other business. However, this process can be complicated and you should seek advice before you proceed.
  • Offset it against your CGT bill. When you sell your buy-to-let property, you can offset purchase costs – including Stamp Duty – against any Capital Gains Tax (CGT) you owe.

Stamp Duty higher rate rules for other purchases

Although the new Stamp Duty changes are mainly aimed at buy-to-let purchases, there are some other circumstances when you could be affected.

You're buying a new home before your old one has sold

If you're moving home, you may find that you end up buying a new property before you've sold your current home (for example, if your sale falls through). In this case, at the end of the day of the transaction you would temporarily own two properties without having replaced your main residence.

Because it would be difficult for the government to determine whether you intend to sell your home or not, the new higher rate will apply. You can claim a refund if you sell your first property within 18 months, but you will need to find the extra cash to pay the higher Stamp Duty when you make your purchase.

You're buying a property jointly

If you're buying a property jointly and either of the purchasers already owns a home (and is not replacing their main residence) the higher rate will apply. The government is consulting on this until 1 February, because of the potential impact on first-time buyers.

You're buying a property for your children to live in

If you already own a home and you buy one for your children, when the transaction is complete you will own two properties without having replaced your main residence. This means that you will have to pay the higher rates.

What counts as a main residence?

Determining your main residence for Stamp Duty purposes is fairly straightforward. If you own two properties, you won't be able to "choose" which is your main residence – HMRC will decide based on the following factors:

  • Where you and your family spend your time
  • If you have children, where they go to school
  • Where you're registered to vote
  • Where you work
  • The address you've provided to various organisations for correspondence

Non-residential property

If you purchase non-residential property, the higher rates won't apply – even if it's later converted into residential property. Non-residential property includes:

  • Commercial property such as shops and offices
  • Agricultural land
  • Bare land
  • Six or more residential properties bought in a single transaction
  • A mixed-use property (one with both residential and non-residential elements)

When and how is Stamp Duty paid?

Stamp Duty must be paid within 30 days of the purchase – there are fines and interest if you don't pay.

Fortunately, your conveyancer or solicitor will usually pay it for you on the day of the transaction. You'll need to transfer them the money along with your deposit and any fees you need to pay.

If they don't, it remains your responsibility to submit your Stamp Duty Land Tax return. You can do it online, here's the link.

Frequently asked questions

Do first-time buyers pay Stamp Duty?

Yes. For a short while, the government suspended SDLT on properties worth up to £250,000 for first-time buyers, in an effort to boost the housing market. This lasted from March 2010 until March 2012. Unfortunately first-time buyers now pay the same amount of Stamp Duty as home movers.

Do you pay Stamp Duty on land and commercial property?

In England, Wales & Northern Ireland:

Yes, if it's worth over £150K and is non-residential.

  • If it's worth less than £150K: You still send a Stamp Duty return, but you pay £0 if its non-residential (shops, offices, farmland etc) or mixed use (e.g a flat connected to a shop or office)
  • If it's worth over £150K: You will need to pay Stamp Duty, but different rates and bands apply. See the government's website for full details.

In Scotland:

There are different rules and rates for residential property: jump back to the section on LBTT rates).

Do you pay Stamp Duty when you purchase multiple properties?

Yes. Interestingly, if you purchase six or more properties in a single transaction it counts as "non-residential", so you would pay just the normal residential rate.

How will inherited property be affected?

You don't pay Stamp Duty when you inherit a property, but inherited property can be used to determine whether or not you're purchasing an additional residential property.

For example: suppose you own your home, and inherit a property from your parents. You sell the inherited property and use the proceeds to purchase a buy-to-let property. At the end of the transaction, you own two properties and haven't replaced your main residence, so you would pay the higher rate of Stamp Duty.

What to do next

  • Calculate stamp duty on your particular purchase.
  • If Stamp Duty will stretch your cashflow around the completion date, make sure you have the right mortgage. Look for a low-fee mortgage – our comparison tables help you find and choose from all available deals.
  • If you want to pay today's Stamp Duty rates on a buy-to-let property, make your move now – the transaction has to complete by the end of the day on 31 March, so the countdown is running. You can compare buy-to-let mortgages here or call 0330 0174031 for buy-to-let mortgage advice.

Last updated: 19 January 2016