Stamp duty on residential properties explained

Bricks and mortar have always been close to my heart. I started my first ‘real’ job as a property manager for an estate agent. I stayed in the sector for well over 4 years while moving through different roles in the company and finally exiting to work in digital. But the fondness of properties has never left me.

It helps that the United Kingdom, and London where my home is, boasts some rather attractive properties.

Let’s get to the point though.

Aside from paying for the purchase of the property itself, a person purchasing a home is usually liable for a tax called Stamp Duty. This tax is usually collected and filed by your solicitor/property conveyancer. It is a tiered tax with some variation between Scotland, Wales and England (and the Northern Ireland).

The calculation is quite similar for all three regions, however the tiers and exemptions vary. As a Londoner, I will be illustrating the stamp duty calculation with England rates.

First things first, here is an explanation of  each of the tiers:

Tier 1: Any residential properties valued at £125,000 are exempt from stamp duty. This includes shared ownership properties where the value of your share is below £125,000.

Tier 2: properties sold for up to £250,000 will not pay any tax on the first £125,000 and 2% on any amount above £125,000 and up to £250,000

Tier 3: properties sold for up to £675,000 will not pay any tax on the first £125,000, 2% on any amount above £125,000 and up to £250,000 and 5% on any amount above £250,000 and up to £925,000

Tier 4: properties sold for above £925,000 and up to £1.5mil will not pay any tax on the first £125,000, 2% on any amount above £125,000 and up to £250,000 and 5% on any amount above £250,000 and up to £925,000 and 10% on any amount above £925,000 and up to £1,500,000

Tier 5: Properties valued above £1,500,000 will pay 12% tax on any amount above that value. On any amount below that value, the tax will be charged as per previous tier.

When I first looked at Tier 5 I honestly thought it was ridiculous, because just how rich do you have to be to buy that sort of a house? Except, that’s every single large town house within zone 1 and the good bits of zone 2 in London.  Because London is VERY expensive.

My own modest flat is within Tier 3, so let me dream big and say that I am upgrading to a house worth £1,750,000 (I wish!) to show you how such amount would be calculated all the way up to Tier 5.

Tier 1: tax exempt

Tier 2: (£250,000 – £125,000)*2% = £2,500

Tier 3: (£925,000 – £250,000)*5% = £33,750

Tier 4: (£1,500,000 – £925,000)*10% = £57,500

Tier 5: (£1,750,000 – £1,500,000)*12% = £30,000

Total tiers 1 – 5 = £123,750 stamp duty payable.

The calculation, to be explained simply is, from bottom to the top:

Tier 5: house price minus the amount covered by previous tiers times the percentage for the tier

Tiers 4 – 2: Upper tier boundary minus the amount covered by previous tiers times the percentage for the tier

Tier 1: no charge 😊

I will now bring myself back down to Earth and provide a much smaller calculation based on the price of my own home, if I were to buy it again today, say £308,000.

Tier 1: tax exempt

Tier 2: (£250,000 – £125,000)*2% = £2,500

Tier 3: (£308,000 – £250,000)*5% = £2,900

Tiers 4 & 5 = don’t care

Total stamp duty: £5,400

 

Exemptions

There are exemptions in place for certain types of buyers. If you have never owned a property before, as a ‘first time buyer’ you are exempt from stamp duty if the property purchase price is below £500,000. The exemption also applies for all individuals purchasing zero carbon emissions homes up to the same value with a reduction of the fee above that value by £15,000.

If you are a public housing (i.e. affordable housing owned by local authority) tenant and you are using so called Right to Buy, your stamp duty is also calculated on a reduced rate.

Individuals purchasing multiple properties at the same time will pay the tax calculated on the average price of the properties (i.e. total purchase price of all properties divided by the number of properties) instead of individual cost of each property. This usually results in some savings if you are purchasing a mixture of expensive and tier 1 properties. The minimum payment will be at 1% of your total purchase value.

Investment properties and second homes

Individuals purchasing their second or nth property are subject to so called Landlords’ tax.

Only the first £40,000 is tax exempt with the following rates increased by 3% i.e.

Tier 1: up to £40,000 at 0%

Tier 2: £40,001 to £250,000 at 5%

Tier 3: £250,001 to £925,000 at 7%

Tier 4: £925,001 to £1,500,000 at 12%

Tier 5: £1,500,001 and above at 15%

 

You can find more information and useful calculators online, but to make your life easier, I have included a downloadable excel calculating the stamp duty for you.

Enjoy!

 

Stamp duty calculator England 2019

 

 

 

 

 

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