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Stamp duty on UK property

Stamp duty on UK property adds significantly to the cost of moving home.

You pay stamp duty on UK property when you buy a home that costs more than £125,000.

There is no stamp duty payable if you’re the seller of the property.

Stamp duty is a transaction tax (the long name is Stamp Duty Land Tax), which you need to take into account when working out your budget for moving or buying a home for the first time.

Buying a property in Scotland? From April 2015 stamp duty is replaced by a levy called the Land and Buildings Transaction Tax.

Stamp duty on UK property rates

The stamp duty rate paid by home buyers varies depending on the purchase price of the property.

There are five stamp duty rate bands. You pay stamp duty at the indicated rate on the portion of the price lying within each band.

The stamp duty rate bands are as follows:

Purchase price band Stamp duty rate
£0 – £125,000 0%
£125,001 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1.5 million 10%
Over £1.5 million 12%

Source: GOV.UK

For instance, if you were buying a home for £400,000 you’d pay:

No stamp duty on the first £125,000 of the total £400,000.

A 2% stamp duty rate on the next £125,000 up to £250,000.

The 5% rate on the final £150,000 of your £400,0o0 purchase.

This works out as:

£0 (up to £125,000) + £2,500 (2% of £125,000) + £7,500 (on £150,000)

= £10,000 in total stamp duty.

Incredible! An improvement to the tax system

Under the old stamp duty system, stamp duty was payable at the highest applicable rate on the total purchase price of a property.

That was a really stupid way of doing things.

Stamp duty inevitably adds friction to the home buying process by making it much more expensive to move house, and it doesn’t do much to restrain prices.

But the old system also distorted asking prices.

For instance, there was a 3% band that kicked in if you bought a property worth more than £250,000. Stamp duty on a £250,000 property was £2,500, but were you to pay just £1 more you’d face a stamp duty tax bill of £7,500.

You’d pay an extra £5,000 in stamp duty because of that measly £1!

In reality few people would do that, so house prices were distorted around the different bands by sellers trying to take into account these warping effects when setting their asking price.

Similar one-bedroom Zone 3 London flats stayed priced at £250,000 for many months even in the rising market, for instance, before leaping up to £275,000 as a group. Very few people ever paid £255,000 in the meantime.

Buyers also resorted to ruses to reduce stamp duty.

The new stamp duty rates introduced in December 2014 did away with the distortions of the old ‘slab’ stamp duty system, because the higher rates are only chargeable on the portion of the property price that falls within each rate band. (It’s similar to what happens with your salary and income taxes).

In addition, the total stamp duty you’ll pay on a particular property price is lower in the vast majority of cases under the new system.

Chancellor George Osborne says you’d have to spend more than £937,000 to see your bill go up under the new system.

The £10,000 payable in my example above would have been a £12,000 stamp duty bill before – that’s a saving of £2,000 under the new stamp duty rules.

But put the Aldi prosecco back on ice – I’d expect any such savings in the cost of buying a home to be quickly reflected in house prices moving higher.

The main benefit of the 2014 overhaul of stamp duty will therefore be the removal of those cliff-edge distortions, which may make the market a tad more liquid, too.

Stamp duty on UK property calculator:

  • You can work out your stamp duty bill under the new system using this handy HMRC stamp duty calculator.

That calculator also shows you what was payable under the old rules, which may be handy to know if you’re in the midst of a move.

Filed under: Property

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{ 25 comments… add one and remember nothing here is personal advice }
  • 1 Neverland December 4, 2014, 6:12 pm

    Council tax is the real crime – no revaluations in 20 years

    Plutocrats in Mayfair pay less than families in Scunthorpe

    Westminster council tax band H – £1,350 pa

    Scunthorpe council tax band C – £1,380 pa

    Something similar to the above home in Westminster would pay c. £20k in annual property taxes in New York

  • 2 The Rhino December 4, 2014, 7:06 pm

    fast work, or did osborne give you a heads up on this a few days ago? either way, you’ve definitely got your finger on the knob of finance..

  • 3 Ben December 4, 2014, 7:11 pm

    Now all houses cost more because demand is greater than supply creating an auction scenario where the bidder has to pay the maximum they can afford. Mix in loose credit and you have debt serfdom.

    As Neverland says we need property tax. This change will make no real difference to a flawed system of taxing work not capital.

  • 4 Mr Zombie December 4, 2014, 8:23 pm

    I never understood why stamp duty was structured the was it was. Some vague attempt to slow property growth? Or just to create strange value black holes around the tax bands? Most odd.

  • 5 moneystepper December 5, 2014, 10:18 am

    This is an absolute jackpot for anyone currently “under-contract” as they will get to decide on which stamp duty scheme to use and won’t suffer any house price rises as a result.

    Regarding the change, this was a WELL overdue change in the tax system and actually an improvement – which is refreshing!

    I’m not convinced that it will necessarily lead to house price increases (above and beyond the normal rises), but instead will improve two areas:

    * It may help narrow the gap between the SE and London compared to the rest of the country
    * It will stop the crazy house pricing around the old stamp duty tax bands.

    Regarding Ben’s comment, its important to remember that a tax on capital will also be a tax on money that has already been taxed when it was earned during work (and is again taxed any time that capital earns any income/gains)…

  • 6 The Investor December 5, 2014, 10:40 am

    @Moneystepper — Hi!

    It’s important to remember that a tax on capital will also be a tax on money that has already been taxed when it was earned during work (and is again taxed any time that capital earns any income/gains)

    Well, that’s not true for a principle place of residence. You don’t pay any capital gains tax on your own home.

    I understand the rationale (to keep the market liquid and enable people to move from place to place (/job to job) without an even more excessive transaction burden, but equally it has encouraged people to use homes as an investments, and likely bid up prices.

    Take it from someone who is still to buy a house and who has never enjoyed the gearing from a mortgage, and yet who has payed CGT on shares. The CGT nature of tax-free leveraged housing gains are *very* attractive, and very hard to keep up with.

    @Mr Zombie – I think it was a classic case of a tax designed for entirely different times that was not kept up-to-date. Originally it was almost the equivalent of the Lib Dem’s “mansion tax” in its scope and reach. But inflation makes today’s strange and arbitrary tax on the few into a drag for the masses. (Arguably see also higher-rate income tax…)

    @Ben — For once we agree. 🙂 I can’t see any reason why someone with an extra £2,000 freed up won’t bid up house prices, especially as stamp duty tends to be thought of as an upfront cost, and if the savings are added to a deposit that will increase their ability to borrow more.

    @The Rhino — Not sure if that’s a phallic joke at Osborne’s expense or mine!? ‘_)

    @Neverland — I’m unsure about revaluing Council Tax. It’s looking to me like we need some kind of higher wealth tax to curb the growing disparities, but is Council Tax the way to do it though? Does a small mews house in Kensington and Chelsea use 15x more Council services than a small house in Scunthorpe? I doubt it. There would be an easy ability to key into house price inflation now it’s all tracked by Zoopla and the like though, which would at least make it fairly easy to implement.

    I guess any politician looking at what happened at the last great attempt to reform these tax bands (the early 1990s) might well decide to leave it for the next incumbent!

  • 7 Neverland December 5, 2014, 11:06 am

    @Investor

    A small mews house in Kensington would not be band H as it is still based on the valuation it had in 1991…

    …however the owner of a £30m mansion in Kensington is still pays less council tax per year than the owners of a semi in Scunthorpe

    Before the council tax we had the domestic rates for c. 40 years whose annual charges where largely based on the market value of a house/flat

  • 8 The Investor December 5, 2014, 12:54 pm

    @Neverland — Perhaps I’m confused as to your proposal. Are you saying there are new mansions that aren’t being captured? I thought you were suggesting something akin to new bands that reflect higher property prices.

    For reference, that small mews house in South Kensington could easily cost £3-5 million.

  • 9 Neverland December 5, 2014, 1:35 pm

    @Investor

    In a nutshell we hugely restrict the number of properties that can be built in London and SE through planning regulations

    This means that property in these areas becomes increasingly valuable – but the current owners have done nothing to create that value

    Through various tax exemptions like principle private residential relief this unearned gain is currently untaxed

    Meantimes about £24bn of taxes is shovelled into the pockets of private landlords each year through housing benefit, mainly in London and the SE

    I think that expensive residential propeerty should be taxed – pretty heavily – and the revenue reinvested in reducing income taxes and even – shock, horror – building houses

    As Obama said “you didn’t build that” – the value of expensive housing in the UKL doesn’t belong solely to the owner, it belongs partly to the people of the UK fo0r making the UK such a desirable place to own property

    Also, like parking in central London, housing in London and SE is a very scarce resource – part of the reason is that the wealthy buy it up as investments not to live in, convert a building full of flats into a single house and even knock houses together

    Since we’ve decided to make places to live in certain parts of London a scarce commodity we need to use taxation to discourage this behaviour just like we use taxes on cigarettes to discourage smoking

    So yeah, I would like to see both stamp duty (like the initial charge on a unit trust) and council tax (like the annual management fee) both increase with the value of housing

  • 10 Sam December 5, 2014, 2:46 pm

    @Neverland
    [So yeah, I would like to see both stamp duty (like the initial charge on a unit trust) and council tax (like the annual management fee) both increase with the value of housing.]

    I like the way you look at this, but what about the recidents for whom their expencive property is not an investment and just a place to live. As The Investor says, council tax is for the services that the property recieves, how comparable the services in London and Scunthorpe are is another debate but I dont think this is the tax to change to solve this issue.

    I would support an additional tax “like an annual management fee” on second homes that could be considered an investment and would support this being in proportion to property (investment) value. There will be a lot of people on lower incomes who find that their home is worth far more than when they bought it 30 years ago who may not be able to afford an increase in council tax for no extra service and who cannot move due to employment commitments.

    I do not live in London but in up in Yorkshire and I do not currently own a property.

  • 11 The Investor December 5, 2014, 2:55 pm

    @Neverland — Thanks for clarifying. As I said in my initial reply, I do see an argument for a wealth tax. And I certainly see property as a decent target. But you haven’t convinced me that Council Tax is the way to do it, other than that it exists already. It’s more expensive to run services in South Kensington than Scunthorpe, but it’s not 15-20x more expensive.

  • 12 Neverland December 5, 2014, 3:02 pm

    @ Sam

    “what about the recidents for whom their expencive property is not an investment and just a place to live”

    They have to move just like someone who rents and finds after a change of job from lawyer to barrista they can’t afford their rent any more so they have to move from their swanky pad

    If they hadn’t had to pay higher rate income tax they would have enough money to pay rent on that nice flat for several more years

    I would also sell off all council housing inside London to whichever Arab came along first

  • 13 Neverland December 5, 2014, 3:12 pm

    @Investor

    Residential rates, as I recall (its been a long time), were effectively an annual luxury tax on expensive housing

  • 14 Sam December 5, 2014, 3:37 pm

    @Neverland
    “They have to move just like someone who rents and finds after a change of job from lawyer to barrista they can’t afford their rent any more so they have to move from their swanky pad.”

    Yeah you are right, throw out all the Taxi drivers, Nurses, Bus drivers, etc… They can all go and retire in the countryside with their massive tax free windfall. You could get all the ex-lawyers to drive the buses and empty the bins when they are not making coffee. Don’t worry about all the empty houses that are left though, the wealthy private landlords will come in and buy them up, the government could help pay the extortionate rent to these private landlords so we can get some more people in to help the ex-lawyers clean the streets, mind you, how will these renters be able to pay the massive council tax bill for the landlord which is always past on to the renter, may be they wont come, who will help the ex-lawyers make London “such a desirable place to own property”? I don’t know.

  • 15 Neverland December 5, 2014, 4:51 pm

    @ sam

    If you look above you can see I am not actually in favor of housing benefit as its actually a state handout to the rich

    Currently c. 25% of the people who live in Kensington & Chelsea live in council provided accommodation, in Islington its over a third

    The average one bedroom flat costs c. £0.75m in Kensington and Chelsea and about £0.5m in Islington

  • 16 grey gym sock December 5, 2014, 6:34 pm

    “the knob of finance” … who could you possibly be referring to? 🙂

    but seriously, this is a genuine improvement in stamp duty. it’s quite similar to the “land and buildings transaction tax”, which is going to replace stamp duty is scotland from april 2015, which will have these bands:

    Up to £135,000: 0%
    £135,001 – £250,000: 2%
    £250,001 – £1,000,000: 10%
    Over £1,000,000: 12%

    in general, if stamp duty is (for instance) £2000 lower, it’d expect the market price to rise by £1000, so that the buyer and seller each gain £1000.

    and around the old “cliff edge” prices, you’d expect to see a wider spread of prices.

    i agree we should have proper property taxes. currently, it’s regressive – i.e. council tax is higher for more expensive properties, but it’s lower as a percentage of the property’s value. it should at least be the same percentage for more expensive properties, and preferably a gradually higher percentage.

    but doesn’t labour’s proposed “mansion tax”, when combined with council tax, give us something nearer to a proper property tax? they’re selling the idea very badly: they make it sound more like “soak the rich” than “fair property taxes”. and it’s needlessly complex to have 2 taxes (council tax and mansion tax) where 1 (domestic rates) would do. but it’s still a step in the right direction.

    however, i’d rather bring back domestic rates (combined with an (overdue) revaluation of properties). or alternatively, a land value tax might be fairer still, because it is a more direct way of taxing the “you didn’t build that” part of a property’s value.

  • 17 Steve December 6, 2014, 5:44 pm

    The conversation seems to be drifting slightly off the subject of stamp duty, so I’ll seize the opportunity to ask a question that’s been bothering me for a while.

    There seems to be quite a lot of talk about wealth taxes in one form or another lately. As someone looking to retire early on income from my investments (plus having a paid-off property), this seems somewhat alarming. If you have to pay (say) 5% of your net worth in tax every year, it’s going to be virtually impossible to retire – there’s all your investment income for the year gone, and probably more. I suppose you might say things like SIPPs (no good in themselves for the early retiree, though certainly a valuable part of the strategy) and ISAs might be tax free, which would help, but then I see at least rumours about a £100k ISA cap as well. Even with an optimistic-ish 4% SWR, someone who aims to retire early on £10k a year would need a net worth of £0.25m – way over the ISA cap I saw mooted. (And that’s assuming they don’t own a property, which would push their net worth up.)

    Am I missing something fundamental about how wealth taxes work? It just feels like we might be heading in a direction where early retirement is pretty much taxed out of all possibility.

  • 18 magneto December 6, 2014, 8:24 pm

    @Steve
    “There seems to be quite a lot of talk about wealth taxes in one form or another lately. As someone looking to retire early on income from my investments (plus having a paid-off property), this seems somewhat alarming. If you have to pay (say) 5% of your net worth in tax every year, it’s going to be virtually impossible to retire – there’s all your investment income for the year gone, and probably more.”

    Yes very much with you on this one Steve; there is an increasing flow of suggestions creeping around about wealth taxes, and not from just the obvious politicians. The ‘mansion tax’ is but one form.
    As a retiree of working class origin, for us a wealth tax would be a killer, esp assuming main residence is included. Think the French use a wealth tax at about 1% or 2% per annum, very hazy on this, others may have more correct info. At those sort of levels doesn’t sound much, but it is cash that has to be realised each year from assets!
    Political parties of all complexions bang on about ‘hard working families’ and look around for alternative ‘easy targets’ to raise taxes from, which increasingly seems to be those that have assets ; I.E. those that have saved through life and invested wisely to accumulate assets for their retirement.
    Should we throw in the towel, be feckless, spend all our assets, and fall back totally on the state in our older age?

  • 19 The Investor December 7, 2014, 8:12 pm

    On the issues of a wealth tax, I see both sides. Obviously it goes against the general grain for me and would be ultimately inconvenient. But it’s currently undeniable that any semblance of trickle down has turned more into Hoover up. Worse, we capitalists — whether 1%ers or financial independence seekers — have seen profits at our companies boom not because they’re reinvesting for growth but because they’ve cut costs and investment and are eating themselves up with buybacks. We’re pulling up the drawbridge.

    Worse of all, as we saw in recent debates on Monevator inheritance tax is hated by most and considered impractical by the rest. I’d be less likely to entertain wealth taxes if I thought ultra richness was going to be a one generational perk. But on current trends the opposite is true.

    I don’t want to live in a world of ever increasing disparity. If capitalism can’t curb it’s excesses, I see a case for redistribution at the margins stepping in.

    But it’s certainly a hard problem!

  • 20 Steve December 8, 2014, 2:11 am

    @magneto I’ve had a quick Google regarding the French wealth tax. This article seems to cover the subject: http://en.wikipedia.org/wiki/Solidarity_tax_on_wealth It’s rather unclear but it looks like you don’t pay anything unless your net worth (including property) exceeds €800k or €1.3m. Without taking a stance on whether such a tax is “fair” or not, I could probably live with an equivalent tax in the UK, especially if the threshold was at the €1.3m level. (I don’t expect my net worth at the point of retirement to exceed €800k, but inflation might effectively lower that threshold and cause me to trip over it eventually.)

    No point getting too worried about it right now I guess. Also I suppose that, by definition, if I’m in a position to retire early, I am in a position to consider emigrating to a more favourable jurisdiction, without the major worry of finding a job overseas. I’d really hate to have to do it, but it’s always good to keep it as a backup plan. A wealth tax while I was actually working and building up my assets to retire would “merely” require a few extra months’ work, which would grate but wouldn’t be a killer.

  • 21 magneto December 8, 2014, 11:55 am

    @Steve
    Thanks for the link re French Wealth Tax.
    Interesting reading.
    Depending on the interpretation, as you say a little unclear, might mean married couples being taxed as a unit. For couples on modest incomes, and assuming a tax at the French levels, owning property in London (or larger family homes elsewhere in UK) combined with some savings, there could be a problem!
    All sorts of ruses could be employed by the really wealthy to avoid such a Wealth Tax. Shifting monies quietly into gold, art, antiques, rare cars, jewelry, trusts, forestry, folding notes, offshore investments, qualified gifting, and so on.
    Would create a splendid feeding ground for the tax consultants to minimise taxes. Suspect those at whom such a tax was targeted would be those who could well afford the consultants to avoid paying the tax.

  • 22 Alex December 9, 2014, 12:35 am

    To my mind, the public policy objective of a wealth tax as opposed to existing taxes makes perfect sense: income tax disincentivises people to work harder, and transactional taxes such as VAT and Stamp Duty either (in the former case) hit poorer people hardest or (in the latter case) adds annoying frictional costs to house or share purchases. All those are bad things. A wealth tax, on the other hand, simply disincentivises people from hoarding their wealthy. Whilst hoarding wealth for the future is probably good for individuals (and in the case of limited retirement planning probably good for society too as it means you won’t need too much support when older), on balance it probably isn’t good for society as a whole.

  • 23 magneto December 9, 2014, 12:22 pm

    @ Alex

    “According to the Credit Suisse global wealth report, a person needs just $3,650 – including the value of equity in their home – to be among the wealthiest half of world citizens. However, more than $77,000 is required to be a member of the top 10% of global wealth holders, and $798,000 to belong to the top 1%.

    “Taken together, the bottom half of the global population own less than 1% of total wealth. In sharp contrast, the richest decile hold 87% of the world’s wealth, and the top percentile alone account for 48.2% of global assets,” said the annual report, now in its fifth year.

    The recent debate on whether wealth inequality distribution was increasing, seems to have been sparked off by the research and publication by Thomas Piketty, and the much highlighted errors in his spreadsheet.

    Is the UK state the most suitable participant to direct funds to those most in need? Maybe.

  • 24 Alex December 11, 2014, 8:06 pm

    @ magneto

    Although interesting, I don’t fully grasp the relevance of your post to mine (the first two paragraphs, Google reveals, are a quotation from this article: http://www.theguardian.com/business/2014/oct/14/richest-1percent-half-global-wealth-credit-suisse-report )

  • 25 stuart gibbons January 9, 2015, 1:04 pm

    I have to agree with Neverland here. Council tax has become a crime against house ownership especially outside of the capital.
    What we need is an annual property tax similar to the one in New York.

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