Whether you’re buying or selling a house, the first time can be confusing. There are taxes and charges that can apply to home purchases that don’t apply to sales and vice versa.
One common example of these charges is stamp duty, and many homebuyers may be told they need to pay it without fully understanding what it is, or where it has come from.
So, how much is stamp duty, and when do you pay stamp duty on a house?
Do you pay stamp duty if you are selling a house?
Stamp duty land tax (SDLT), to give it its full name, is a charge paid to the treasury upon the purchase of a home. When selling a home, you as the seller aren’t liable to pay stamp duty; that rests on the buyer.
However, being a seller in one part of the chain doesn’t exempt you from paying stamp duty in an onward purchase. Therefore, if you’re selling your home in order to buy another, you will likely pay stamp duty on that new purchase (though not always – read on for why that might be).
How much is stamp duty on buying a house in the UK?
The specific amount of stamp duty paid on a house purchase depends on the purchase price.
Property bought for less than £125,000 is always exempt from stamp duty. First-time buyers purchasing property for less than £300,000 also don’t pay stamp duty, nor do people who inherit property through a will.
It should be noted that those who inherit property can no longer count as first-time buyers. Even though the property wasn’t strictly bought, the definition rests ultimately on ownership. This means that somebody who inherits property and goes on to buy their ‘first’ property will need to pay stamp duty even if the amount is below £30,000.
Additionally, stamp duty is only exempt from inherited property that doesn’t have an existing mortgage. If an inheritor takes on a property that has an unfinished mortgage attached, stamp duty will apply to the outstanding loan value (the amount not yet paid off).
The rate of stamp duty applicable differs depending on two factors: the purchase price of the home, and whether it’s a ‘standard’ purchase, a second home, or buy to let. The price bands in England and Northern Ireland (excluding first-time buyers) are:
- £0 – £125,000: 0% (not applicable) for standard, 3% for second homes and BTL
- £125,001 – £250,000: 2% for standard, 5% for second homes and BTL
- £250,001 – £925,000: 5% for standard, 8% for second homes and BTL
- £925,001 – £1.5 million: 10% for standard, 13% for second homes and BTL
- Over £1.5 million: 12% for standard, 15% for second homes and BTL
The rule of thumb is that a three per cent premium applies to any purchase of a buy-to-let property or an additional house for buyers who already own a home, even if the price is below the £125,000 threshold for the standard rate.
First-time buyers purchasing a property over £300,000 can pay a reduced rate of five per cent stamp duty on the portion that exceeds £300,000 as long as it does not exceed £500,000.
The threshold for stamp duty on non-residential purchases is £150,000.
Can you avoid stamp duty when buying a house?
The only true way to avoid paying stamp duty on a house is to be a first-time buyer, which is obviously a one-time status.
Some lenders might allow you to bundle your stamp duty with your mortgage. However, this is not the ideal choice for everyone. Doing so means your final borrowed amount will be higher, resulting in higher monthly payments and incurring more interest than if you paid it upfront.
Selling your main home at the same time as buying a new one means the three per cent surcharges won’t apply. Even if you pay the extra on a second home, this can be reclaimed as long as your main residence is sold within three years of buying the second property.
What tax do you pay when selling a house?
Stamp duty doesn’t apply to you when selling a house, though you may have to pay capital gains tax.
If your home has appreciated in value since you bought it and meets certain criteria, you could be charged capital gains tax. This is charged at 18% or 28% for applicable residential property and 10% or 20% for non-residential property. These percentages are charged on the amount gained, not the total sale price.
For individuals selling their main home to buy another, capital gains tax will commonly not apply unless the home includes a lot of extra land or additional buildings, it’s partly a business premise, it was bought to make a profit as an investment, or it’s partly sub-let.
If you’re thinking of selling your house through an estate agent, enquire if capital gains tax is likely to affect your profit to put your mind at ease.
Selling your house with Mistoria Estate Agents
Selling a house in or around Cheadle? Pop into Mistoria Estate Agents or give us a call, whether you want to know if you’re going to be taxed on your sale, for help calculating stamp duty on a house purchase, or to get help listing your home for sale. We’re happy to help however we can and provide the best services at competitive rates.
To get in touch with us today, call our friendly team on 0161 519 9554 or use our contact form.