When the Covid-19 pandemic hit the UK, the housing economy was in turmoil. Be it estate agents in Leeds or potential buyers in London, every individual who was interested in the housing market had to halt any ongoing transactions. In order to boost the property market, as well as the economy as a whole, the UK government announced a stamp duty holiday. This was essentially a temporary suspension of the stamp duty tax to boost property sales. However, as of September 2022, the stamp duty holiday has come to an end and the stamp duty tax stands as per the pre-Covid era. With the continuous change in the stamp duty tax over the past few years, here is everything you need to know about the Stamp Duty Land Tax, who pays it and how it is calculated.
What is stamp duty and who pays it?
Stamp Duty Land Tax, usually known as stamp duty, is the duty that is levied on the purchase of a property in the UK. Stamp duty is always paid to HM Revenue & Customs and it is paid by the individual who is purchasing the property. The amount of stamp duty that needs to be paid is calculated based on the value of the property. The buyer always pays the stamp duty, not the seller. Of course, if the seller is purchasing a new property then he or she is expected to pay the stamp duty on the purchase of the new property, not on the sale of the existing property. As a rule of thumb, stamp duty is always paid by the buyer of the property, not the seller.
How much stamp duty do I have to pay?
First and foremost, if the value of a property is less than £40,000 then the buyer is totally exempt from the stamp duty tax. Now, as of 23rd September 2022, the date that the stamp duty holiday came to an end, new buyers will not have to pay any stamp duty on the first £250,000 of the value of the property. So, if a property is worth £600,000, then the buyer will only have to pay stamp duty on the remaining £350,000 as stamp duty will not be levied on the first £250,000. As for first-time buyers, there is no stamp duty tax on the first £425,000 on the value of the property.
So, there is no stamp duty levied on a property that is worth less than £250,000. For a property that is valued between £250,001 and £925,000, the stamp duty is fixed at 5 per cent. If the value of the property is between £925,001 and £1.5 million, then the buyer will have to pay 10 per cent as stamp duty. For all properties over £1.5 million, the stamp duty is 12 per cent. If the buyer already owns a property in his or her name, then they have to pay an additional 3 per cent on the purchase of the property. So, if a buyer already owns a property and he or she is buying a property that is worth £600,000, then the stamp duty will be calculated at 5 per cent plus an additional 3 per cent. With that being said, a buyer will not have to pay the additional 3 per cent if he or she is replacing an existing property with a new property. At the time of purchase, the original residence or original property must already be sold to avoid paying an additional 3 per cent in stamp duty tax.
Do sellers have to pay any tax?
A seller is required to pay the Capital Gains Tax when selling or disposing of a property. However, there are certain exemptions for the same. If the seller has lived in that property as his or her main house from the time of purchase, then he or she can get a private residence relief which essentially negates that capital gains tax. In such a scenario, the property must only be used as a home; the property cannot be used for business, nor can it be given out on rent. Also, the area must be less than 5,000 square metres. If the above-mentioned conditions are met, then the seller will automatically be applicable for tax relief. However, if these conditions are not met, then the seller will be required to pay some Capital Gains tax.
