Stamp Duty Land Tax (Land and Buildings Transaction Tax in Scotland) is a lump-sum tax that must be paid by anyone purchasing a property or land costing over £125,000. Stamp duty applies to both leasehold and freehold properties, whether you are purchasing with a mortgage or buying outright.
Why does stamp duty exist?
When you purchase a property, any change in the ownership of the land must legally be registered with the Land Registry. In order to do so, a certificate is required from HMRC. They will only issue this upon receipt of payment of stamp duty due when the property is purchased. Luckily, this is something your solicitor will handle for you, so you don’t have to worry.
Where did stamp duty come from?
Stamp duty actually dates back farther than you might expect – it is actually an ancient tax which was introduced to the UK in 1694 during William and Mary’s reign. The tax was introduced to raise funds for the war on France. It was once a duty or tax on documents that needed a royal seal in order to be legally binding – documents such as the transfer of land ownership from one party to another.
How much is stamp duty?
The rate of stamp duty you will have to pay depends on the value of the property or land you are buying. Stamp duty rates are as follows:
0% for transactions up to £125,000
2% for transactions from £125,001 to £250,000
5% for transactions from £250,001 to £925,000
10% for transactions from £925,001 to £1.5 million
12% for transactions over £1.5 million
Rates will increase by 3% from 1st April 2016 for purchases of additional properties, such as second homes or buy-to-let properties. The good news is that where stamp duty was once a flat rate, it’s now worked out on a sliding scale. This means that 98% of those who pay stamp duty will pay less than before under the new rules.
Do I have to pay?
Wherever you buy in the UK, whether you’re purchasing a three-bedroom family home in Sutton in Ashfield or investing in a detached house in Mansfield, you’ll need to pay stamp duty if your property costs over £125,000. You’ll need to pay your stamp duty within 30 days of the date of completion/date of entry (the date contracts are signed and keys handed over). Failing to pay on time could mean you face added interest or even a fine. It’s legally your responsibility to ensure your stamp duty is paid, and you can do so online or by phone banking, by post or at your bank or post office.
What happens if I fail to pay stamp duty?
Failure to pay your stamp duty means that the Land Registry will be unable to process a change in ownership of the land on which your property resides; effectively, it means your purchase will be unable to be completed. It’s highly unlikely that this will happen though, as most solicitors insist on payment of stamp duty before the completion date, to avoid any hiccups in the purchasing process.