Can you add stamp duty to your mortgage?

The simple answer is 'yes', but this will increase how much you borrow – and the total interest you'll pay over time.

If you want to save money in the long run, it's best to pay stamp duty upfront when buying your home. Let's look at what stamp duty is, how much it costs, and the ways you can pay it.

What is stamp duty?

Stamp duty, also known as Stamp Duty Land Tax (SDLT), is a tax you pay when buying a home or land worth over £125,000 in England and Northern Ireland.

It works differently in Scotland and Wales. In Scotland, you pay Land and Buildings Transaction Tax, and in Wales, you pay Land Transaction Tax.

How much is stamp duty?

Anyone buying a home over £125,000 will pay stamp duty at a rate of 2% or more. The tax is charged in bands, so you only pay the higher rates on the portion of the property price that falls into each band.

For example, if you’re buying a home for £300,000:

• You’ll pay 0% on the first £125,000
• 2% on the next £125,000 (£2,500)
• 5% on the remaining £50,000 (£2,500)

Total stamp duty = £5,000

Here are the current stamp duty bands:

• £0 - £125,000 – 0%
• £125,001 - £250,000 – 2%
• £250,001 - £925,000 – 5%
• £925,001 - £1.5 million – 10%
• Over £1.5 million – 12%

There's also an extra charge if you're buying a second home worth £40,000 or more.

Do you pay VAT on stamp duty?

No, you don't pay VAT on stamp duty. Stamp Duty Land Tax is already a tax, and there's no additional VAT charged on this amount. When you pay stamp duty, the full amount goes directly to HMRC without any VAT added.

How much is stamp duty for buy to let?

When you buy a property to rent out (buy to let) or a second home worth over £40,000, you pay an extra 3% stamp duty on top of the standard rates.

This means the stamp duty bands for buy-to-let properties are:

• £0 - £125,000 – 3% (instead of 0%)
• £125,001 - £250,000 – 5% (instead of 2%)
• £250,001 - £925,000 – 8% (instead of 5%)
• £925,001 - £1.5million – 13% (instead of 10%)
• Over £1.5million – 15% (instead of 12%)

For example, if you purchase a buy-to-let property for £200,000, you'll pay:

• 3% on the first £125,000 = £3,750
• 5% on the next £75,000 = £3,750
• Total stamp duty = £7,500

If this was your main home, you'd only pay £1,500 in stamp duty.

Companies buying property and non-UK residents face additional charges too.

Do first-time buyers pay stamp duty?

First-time buyers don't pay stamp duty on homes worth up to £300,000. If you buy a home worth between £300,000 and £500,000, you won't pay stamp duty on the first £300,000. If your new home costs more than £500,000, you'll need to pay the standard rates.

Do you pay stamp duty when you sell a house?

No, sellers don't pay stamp duty when selling a property. Stamp Duty Land Tax is only paid by the buyer when purchasing a property.

As a seller, you won't need to worry about this tax, though you may have other costs to consider such as estate agent fees, solicitor fees, and potential Capital Gains Tax if the property isn't your main residence and has increased in value.

When do you pay stamp duty?

You must pay the full stamp duty amount within 14 days of your completion date. HMRC might fine you if you don't pay on time, so it's best to sort this out quickly.

How to pay stamp duty

There are a few ways you can pay your stamp duty:

Pay a lump sum to your solicitor or HMRC

If you're using a solicitor or conveyancer to help buy your new home, you can pay the stamp duty to them and they'll handle it for you. It's still your job to make sure it's paid on time though. If you'd rather not leave it to someone else, you can pay HMRC directly.

Add stamp duty to your mortgage

Adding stamp duty to your mortgage means borrowing more money, which means you'll pay more interest to your lender – and it will affect your loan-to-value (LTV) too.

LTV is the amount you borrow compared to the value of your home. For example, if you pay a 20% deposit on a home worth £295,000, you'll need to borrow the other 80% (£236,000). This percentage is your LTV.

If you add stamp duty to this (£4,750), your LTV will go up from £236,000 to £240,750. This will cost you more, as you'll pay more interest overall, and your monthly payments will be higher.

Also, the more you borrow, the riskier it seems to a lender, so you might face higher interest rates.

Can I pay stamp duty in instalments?

No, you can't pay stamp duty in bits. You must pay it all at once.

Can I pay stamp duty with a credit card?

No, HMRC doesn't accept credit card payments for stamp duty. This rule started in 2018 to stop home buyers getting into money troubles. With all the costs of moving home – legal fees, deposits, surveys – a big credit card bill is the last thing you need, so this rule is probably helpful.

If you've saved enough for a deposit, try to save a bit extra to pay for stamp duty as a lump sum. As we've seen, this will help reduce the interest you pay and lower your monthly mortgage payments too.

How to claim back stamp duty

You might be able to claim back some or all of your stamp duty in certain situations.

The most common reason for a refund is if you paid the 3% higher rate for an additional property but then sold your previous main home within three years.

Here's how to claim a refund:

1. You must claim within 12 months of selling your previous main home, or within 12 months of the filing date of your stamp duty tax return – whichever comes later.
2. Fill in the 'Application for refund of the higher rates of Stamp Duty Land Tax for additional dwellings' form on the HMRC website.
3. You'll need your Unique Transaction Reference Number (UTRN) from your stamp duty receipt and information about both properties

Other reasons you might get a refund include:

• You paid too much stamp duty by mistake
• You bought a new main home but there was a delay selling your previous one
• The property price was reduced after you completed the purchase

If you think you might be due a refund, it's worth checking with HMRC or getting advice from a solicitor.