Stamp duty has been in the news an awful lot of late, but there’s still a fair bit of confusion out there surrounding the topic, especially the question, Who Pays Stamp Duty & When? We’ll cover that, and more, in today’s post.
What is stamp duty?
In short, stamp duty land tax (SDLT) is a property transaction tax. The amount due will vary depending on a number of factors, including your buying status and the value of the property in question.
Although it may feel as though stamp duty is a relatively new concept, it was actually introduced way back in 1694 to help fund the war effort against our near neighbours, France.
Stamp duty didn’t have much to do with property back then, rather it was imposed to cover legal instruments (formally executed written documents). Later, in the 18th century, stamp duty was extended to cover further paper items and even included goods such as playing cards and newspapers!
Naturally, a lot has changed since its introduction. Stamp duty land tax and its close cousin stamp duty reserve tax (SDRT), which covers shares and securities, were created as spin-offs from the original stamp duty in 2003 and 1986 respectively.
Despite a raft of changes and reforms, both remain in place to this day.
Changes to stamp duty in 2021
The most recent change to stamp duty land tax occurred just a couple of months ago. We won’t go into the details here, as we covered everything you need to know in this article: Stamp Duty Holiday Is Over, How Will The Changes Affect You?
Who pays stamp duty?
On to the first part of our main question: Who pays stamp duty?
The short answer is that the buyer always foots the bill, not the seller. However, there’s more to it than that.
As we’ll see in just a bit, some buyers will be eligible for exemption.
When do you pay? Is stamp duty an up front charge?
Part two of our main question, When do you pay stamp duty, is more straightforward. You must file your return and make the subsequent stamp duty payment to HMRC within 14 days of completing. In the vast majority of cases, this will be handled by your conveyancing solicitor.
How much is it going to cost me?
As we’ve already discussed above, the amount of stamp duty you’ll be liable to pay will vary from transaction to transaction. There have also been changes since the stamp duty holiday ended, with reduced rates in place up until October 2021.
For a detailed breakdown of these stamp duty levels, see the article linked to above in the section ‘Changes to stamp duty in 2021’.
Can I add stamp duty to my mortgage?
The answer to this question is a straightforward ‘yes’, but you would be wise to consider whether or not you should. Just because you can, doesn’t automatically make it the right thing to do.
By adding your stamp duty charge to your mortgage, you are effectively prolonging the agony and increasing the amount overall you’ll have to pay thanks to the interest that’ll be imposed upon the loan.
Another reason to take into consideration is the fact that the increase in the amount borrowed to cover your stamp duty costs could also negatively affect your loan-to-value ratio (LTV). An increase in this figure could result in you missing out of the best mortgage deals, which ultimately means you’ll end up paying a higher interest rate for your loan.
Naturally, this is best avoided unless you really cannot foot the stamp duty bill at the point of sale.
Do first-time buyers pay stamp duty?
Shades of grey enter the equation when it comes to first-time buyers paying stamp duty. While it is true that first-time buyers may qualify for exemption, that doesn’t automatically mean all first-time buyers will be free from stamp duty charges.
For example, discounted stamp duty rates only apply to properties that sell for £500,000 or less. If you are purchasing your first home and the sale price is £500,001 or above, standard stamp duty rates will apply.
What qualifies a first time buyer for stamp duty?
This seems like a bit of a non-question but, as with so many things in the property industry, the answer isn’t as straightforward as one would assume. Check out What Is A First-Time Buyer? Who Qualifies And Who Doesn't? for a detailed explanation.
Do second time buyers pay stamp duty?
This is an area that can cause confusion due to the wording involved. Second time buyers, as in those buying a home for the second time, will (obviously) no longer be eligible for first-time buyer relief, so will be liable for stamp duty at the standard rate.
Where this gets muddled is with those who are buying a second home, i.e. buying another property whilst keeping hold of their main residence. These additional property purchases will incur a further surcharge of anywhere between 3 and 15%.
Who is exempt from Stamp Duty UK?
As we’ve already seen, some first-time buyers will be eligible for exemption, but there are other instances where you may not have to pay stamp duty, too.
According to gov.uk, these include instances where:
- no money or other payment changes hands for a land or property transfer
- property is left to you in a will
- property is transferred because of divorce or dissolution of a civil partnership
- you buy a freehold property for less than £40,000
- you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000
- you buy a new or assigned lease of less than 7 years, as long as the amount you pay is less than the residential threshold or non-residential threshold of SDLT
- you use alternative property financial arrangements, for example to comply with Sharia law
What is the fine for not paying Stamp Duty?
Due to the way in which most of us will settle our stamp duty debt, i.e. via our conveyancing solicitor, the likelihood of incurring a penalty is slim. That, however, doesn’t mean that there aren’t repercussions for those who do file or pay late.
Far from it.
A fixed penalty of £100 will be due if you file past the 14 day deadline but before 3 months after the filing date. A charge of £200 will be due if 3 months elapse.
Should you file after 12 months have passed, an additional tax-based penalty will also be enforced. This can be anything up to the full amount of SDLT already owed.
Furthermore, interest will be added to your SDLT bill should you miss the 14 day cutoff date. This will be calculated from the day after payment was due up until the day payment is made.
Getting a stamp duty refund
In some instances, buyers may be eligible for a stamp duty refund. The full details of this go way beyond the scope of this article, but don’t worry, we’ve already covered the whole process in our post: Stamp Duty Refund: Who's Entitled And How Do You Claim?
That’s it! Hopefully we’ve answered the question of ‘Who pays stamp duty and when?’ for you and you’re now a lot clearer on the process.
If you’re thinking of buying or selling and would like to have a reputable estate agent you can trust on your side, look no further than Petty’s. We have been operating in and around East London since 1908 and our friendly sales team will be happy to help bring your property dreams to fruition.
Give them a call today to find out exactly how we can help you make your next move as smooth as possible.