As a property buyer in the UK, you may have heard of stamp duty. But what does it mean for you? In this article we will have stamp duty explained thoroughly.
What is Stamp Duty and Why Do We Pay It?
Stamp duty (also known as SDLT) is a tax you have to pay when you buy a property in the UK. The amount you pay depends on the purchase price of the property.
It was introduced in 1694 and was originally charged on legal documents such as deeds, but over the years it has evolved to become a tax on property transactions.
How much is stamp duty in 2023?
The current rates for stamp duty are as follows:
-Up to £250,000: 0%
-£250,001 to £925,000: 5%
-£950,000 to £1.5 million: 10%
-Above £1.5 million: 12%
How is it calculated?
Working out how to calculate stamp duty can be a bit complicated, but luckily there are many online calculators available that can help you work out how much you need to pay. You can also use the HMRC’s Land Tax calculator to calculate the amount you’ll owe.
If you are not exempt from paying stamp duty (for instance, if you are a first-time buyer), the amount you pay will be calculated based on the purchase price of the property.
For example, let’s say you’re buying a property for £400,000 and you’re not a first-time buyer.
In accordance with the rates above, you’ll pay 0% on the amount up to £250,000, and 5% on the remaining £150,000 of the purchase price.
How to Pay Stamp Duty?
Stamp duty must be paid within 14 days of completing the purchase of your property. Your solicitor or conveyancer will usually file the return and arrange for the payment of the tax on your behalf. They will then add the amount you owe to their fees and expenses, which you will have to pay as part of the overall cost of buying a property.
If you’re not using a solicitor or conveyancer, you can file the stamp duty return and pay the tax yourself using HMRC’s online service. You’ll need to create an account and provide information about the property and the transaction, as well as your payment details.
What is a Stamp Duty Rebate?
A stamp duty rebate is a refund on any amount overpaid when buying a property. For instance, you may not have to pay the tax if you sell your old property within three years of buying your new one. If you buy a new property before selling your old one, you’ll have to pay a higher rate for additional properties, but you can claim a rebate if you sell your old property within the specified time frame.
How Can I Avoid Paying the Duty?
There are a few ways you can avoid paying stamp duty, or at least reduce the amount you have to pay. These include:
- Buying a property under £250,000 (or under £425,000 for first-time buyers)
- Transferring a property to a spouse or civil partner
- Inheriting a property
- Buying a property through a shared ownership scheme
- Buying a property in a designated “zero-carbon” development
Can I Claim Stamp Duty Back?
If you have overpaid, or have paid when you were eligible for exemption or relief that you have not claimed, you may be able to obtain a refund. If you choose to do so, you will have up to 12 months from the date of the transaction to make your claim.
What Happens if You Don’t Pay Stamp Duty?
If you don’t pay the required amount of stamp duty, you could face penalties and interest charges. As with any tax, HMRC has the power to take legal action against you if you don’t pay what you owe. Additionally, if you don’t pay it within the required 14-day period after completion of property purchase, you may face a penalty of £100, which increases the longer you delay payment. If you still don’t pay after 30 days, you’ll be charged interest on the unpaid amount.
If you fail to pay the outstanding amount for more than 12 months, you could also face legal action from HMRC, which could include a court order to pay the amount owed, plus additional fines and fees. In extreme cases, HMRC may even seize your assets or take other enforcement action to recover the unpaid tax.
Therefore, it’s essential to make sure you pay the required amount on time to avoid any legal or financial consequences. If you’re unsure about how much you need to pay or when it’s due, consult with a solicitor or conveyancer who can provide guidance and support throughout the buying process.
Conclusion
In conclusion, stamp duty explained to property buyers in the UK is vital and you should use this page as a guide. The amount you need to pay depends on the purchase price of the property and whether you’re a first-time buyer or not. To avoid paying the additional tax, you can consider buying a property under the threshold or through a shared ownership scheme.
Calculating and paying stamp duty can be a bit complicated, but with the help of online calculators and the support of a solicitor or conveyancer, the process should be relatively straightforward.
If you’re planning to buy a property in the UK, make sure you factor in the cost of stamp duty when budgeting for your purchase. By understanding how stamp duty works and taking advantage of any available exemptions or rebates, you can save money on this tax and make the most of your property investment.
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