Stamp Duty

What is 'stamp duty' on a property?

Stamp duty is a tax levied when you buy a property. It's a very old tax. It used to be a tax on documents. If you didn't get the document stamped -- literally stamped with an official tax seal, then you couldn't prove that you owned the property. So if there was ever a dispute about the property you bought, you couldn't assert your ownership without producing the stamped document. Things have moved on. The collection mechanism is different now, but the effect is the same. You pay a percentage of the purchase price when you buy a property.

Why might I have to pay stamp duty on a property?

The value of properties which change hands in the U.K. each year run into billions of pounds. Stamp duty is the way the government collects its slice of tax on the value of those transfers. The tax is bounded. The structure is slightly complex but very broadly. On property values of up to 125,000 pounds, no stamp duty is payable. On property transactions over 500,000 pounds, the rate is 4%. These are not bands in same way income tax has bands, these are thresholds. So if you buy a property worth 499,000 pounds, you pay tax at 3%. If you buy a property worth 501,000 pounds, just 2% more, you pay Stamp Duty Land Tax at 4%. It's therefore a very bumpy tax and very lumpy in the way it applies. That means you will often see properties advertised figures just below the different break points in the stamp duty scale.

How is stamp duty on a property calculated?

Stamp duty on a property is calculated according to the purchase price. When you know the purchase price, you can look on the table and see at what point it falls in the band, and the band, 1%, 2%, 3%, 4%, will be applied to the value of the property.

What is the maximum percentage of a property's value I might pay as stamp duty?

In most situations, the maximum percentage of a property's value you might pay as stamp duty is 4%. And that's on properties costing more than half a million pounds at current rates.

How does the sliding scale work?

The sliding scale is a bit of a misnomer. For properties up to £125,000, there's no duties payable. We then run through a series of bands - 1%, 2%, 3%, 4% (4% applying on transfers over one and a half million pounds). So there is a clear banded structure. However, the whole of the property price is charged at the rate according to the value of the property. So if you sell a property for £501,000, the purchaser pays stamp duty land tax of 4% on that figure. If you sell for £499,000, then the purchaser pays at 3% on the whole figure. So it's a very lumpy tax. That means that purchasers will be looking to negotiate prices just below the next threshold in the stamp duty scale.

Is there any way of legally avoiding stamp duty on a property?

There are uncertain, very complicated ways which are used in respective commercial property. But for typical house purchases, no. The system is now very clear: stamp duty has to be paid. It's part of the purchase process.

How does stamp duty on a property differ throughout the UK?

Although the way the property transactions are dealt within Scotland differs from the way they're handled in England and Wales, the way that stamp duties is counted for, is just the same in all the countries in the UK.

What is stamp duty when buying shares?

There are two kinds of stamp duty. One is called Stamp Duty Land Tax. As the name suggests, that applies to property transactions. The other, Stamp Duty, applies to other sorts of transactions, mainly shares. That's leveled at a fixed rate of half a percent. That will be dealt with by the bank or the broker or the investment person, whoever you use to make the purchases in sales for you.

How does stamp duty work when buying shares?

Stamp duty applies you to fixed rate of 0.5% to most transactions in shares and securities.

Is there any way of legally avoiding stamp duty when buying shares?

For most people, there is no legal method of avoiding stamp duty on share transfers.