Stamp duty land tax (SDLT), is a lump-sum tax that you have to pay if you buy a property or land costing more than £125,000. You may have heard people simply calling it stamp duty.
The rate of tax that you’ll pay depends on the price of the property. You only pay tax on increasing proportions of the property price above £125,000:
I don’t blame you. It’s complex. MoneySavingExpert.com uses the example of you buying a £300,000 property to show you how stamp duty works:
- The property is worth £300,000
- You’ll pay nothing below £125,000
- You’ll pay 2% between £125,000 and £250,000, totalling £2,500
- You’ll pay 5% on the value above £250,000 which is £2,500
So you’ll pay £5,000.
It’s better than the old system
Before, you had to pay 1% of the entire value on a property between £125,000 and £250,000. For a property between £250,000 and £500,000, you’d pay 3%. So that meant you’d pay £9,000 in stamp duty for a property worth £3,000.
You have 30 days to pay
You’ve got 30 days to pay your tax from the date of completion. If you don’t, you could get a fine and end up building interest on what you owe.
It’s legally your responsibility to ensure you pay the tax, but your solicitor will sort it out. They will probably want the money before they complete the purchase for you to ensure that you pay.
How to pay your stamp duty
Ideally, you want to ensure that you’ve got enough money to pay for the stamp duty outright. But if you need to borrow the money against your mortgage, it is possible.
Bear in mind that you will pay interest on the money you borrow to pay the stamp duty. On a 25-year term, at a rate of 5% and borrowing £5,000, it will cost you £8,500 in interest. That’s pretty huge.
Remember – we’re not financial experts, and all of these figures are estimates and information taken from government websites. Speak to your mortgage broker about the best options for paying stamp duty before making a decision.