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What is stamp duty and how much is it? Property tax holiday explained after extension confirmed in Budget 2021

The i 04/03/2021 Georgina Littlejohn
a close up of a street sign in front of a building: An extension to the stamp duty holiday could see a boom in property sales (Photo: Chris Ison/PA Wire) © Provided by The i An extension to the stamp duty holiday could see a boom in property sales (Photo: Chris Ison/PA Wire)

Rishi Sunak confirmed a widely-expected extension to the stamp duty holiday during his 2021 Budget on Wednesday.

It was previously due to end on 31 March and has seen a boom in property prices as buyers took advantage of the tax break.

When Mr Sunak announced the extension in his Budget speech, he cited “the sheer volume of transactions” as a motivating factor.

He therefore announced that the £500,000 nil rate band will remain in place until 30 June, giving buyers three more months to complete.

After this date, “to smooth the transition back to normal,” the threshold will be reduced to £250,000 until 30 September. The stamp duty nil rate band will then return to its previous nil rate band of £125,000 from 1 October.

But what is stamp duty, how much is it and what is the deal under the Treasury’s scheme? Here’s what we know.

What is stamp duty?

Stamp duty, also known as Stamp Duty Land Tax (SDLT), is a tax on property or land bought in England and Northern Ireland.

You pay the tax when you buy a freehold property, a new or existing leasehold a property through a shared ownership scheme or are given land or property in exchange for payment, for example you take on a mortgage or buy a share in a house.

People in Scotland pay Land and Buildings Transaction Tax and buyers in Wales pay Land Transaction Tax if the sale was completed on or after 1 April 2018.

How much is stamp duty?

The rate of stamp duty ranges from 2 per cent to 12 per cent of the purchase price, depending upon how much the property costs and the purchase date.

You’ll also pay different rates depending on whether you’re a first-time buyer, home mover or buying a buy-to-let, second or holiday home.

England and Northern Ireland have the same rates, while Scotland and Wales have their own taxes on land, which are called Land and Buildings Transaction Tax (LBTT) and the Land Transaction Tax (LTT), respectively.

There are a number of helpful Stamp Duty calculators to help you work out how much you could be liable to pay, including this one by Which?  

Is there a tax threshold?

Pre-Covid, buyers didn’t pay SDLT on any residential property that cost £125,000 or less.

It kicked in by two per cent of the value between £125,001-£250,000, five per cent on £250,001-£925,000, 10 per cent on £925,001-£1.5million, and 12 per cent on any value above £1.5m.

First-time buyers get some SDLT relief to make it easier for them to get a foot on the property ladder.

If you are buying your first property you pay no stamp duty up to £300,000, and five per cent between £300,001-£500,000.

If your first property costs more than £500,000 you follow the same rules as everybody else.

Under the current scheme, if your property costs more than £500,000 then you will have to pay SDLT, and if you’re a first-time buyer you won’t have to pay any SDLT on a property up to £500,000. The amount you pay does depend on the value of your property as it is worked out on a percentage of your purchase price. It is important to consider SDLT when thinking about buying a house as in some cases it could be a considerable amount.

Investors and second-home owners will still have to pay the higher rate but, in England and Scotland, you will benefit from the temporary zero standard rate. Unfortunately, in Wales, the relief only applies for single-home owners.

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