# What is stamp duty?

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Stamp duty; what is it and how do you work out what you’ll pay when you buy your home?

In our latest blog, Ocean takes a look at what you need to know about stamp duty and how it can affect everything from the house you buy to the size of the offer you put in.

## Land tax

Stamp duty – or, to give it its full name, stamp duty land tax – is a tax you may have to pay when you buy a property in the UK, whether it’s for business use or you plan to live there. The amount you’re charged depends on how much you pay for the property, and you must pay it within 30 days of the completion of the sale.

If you don’t correctly file your stamp duty return and pay it within this timeframe, you could be hit with both interest and penalty charges.

## How’s it worked out?

The way stamp duty is calculated was overhauled in December 2014 in an effort to get rid of the steep increases in the tax some buyers were charged if the amount they paid for a property was just a few pounds over a stamp duty threshold. You’re now only charged the stamp duty of a particular threshold on the portion of the sale that falls into that threshold.

Sounds complicated? Check out the table and example below to make things clear.

#### House price                                               Stamp duty %

£0 to £125,000                                                  Nothing

£125,001-£250,000                                            2%

£250,001-£925,000                                            5%

£925,001-£1.5 million                                        10%

Over £1.5 million                                               12%

So, let’s say you’re buying a house for £245,000. You pay no stamp duty at all on the first £125,000. You would then pay 2% on the value above this threshold, which is £120,000 (£245,000 - £125,000 = £120,000), giving you a stamp duty bill of £2,400 (£0 + £2,400 = £2,400).

Now, what about if you have to up your offer to £255,000, which would take it into the next stamp duty threshold? You would still pay nothing on the first £125,000, and then 2% on the value that falls between £125,000 and £250,000, which is £125,000, giving you stamp duty equivalent to £2,500. You would then pay 5% on the amount of the value that’s over £250,000, which in this case is £5,000 – equal to £250 stamp duty. So, your total stamp duty bill would be £0 + £2,500 + £250 = £2,750. Still confused? You can use this stamp duty calculator, which will do all the maths for you!

### What if I’m buying a second home?

From April 2016, the stamp duty thresholds for second properties changed. The new thresholds are:

#### House price                                                  Stamp duty %

£0 to £125,000                                                    3%

£125,001-£250,000                                              5%

£250,001-£925,000                                              8%

£925,001-£1.5 million                                          13%

Over £1.5 million                                                15%

You can find out more about these changes in our blog.

### How is it paid?

When you start buying a house, you appoint a solicitor or conveyancer to help with all the legal dealings. They will also sort out filing your stamp duty return for you when the sale completes and they’ll arrange payment for you to - however, the money will come from you.

It is possible to add the stamp duty to your mortgage, although this may not be advisable if it alters the loan to value ratio so much that it impacts on the number of mortgages available to you and the deals that you qualify for. You can find out more about why getting a mortgage to cover your stamp duty bill isn’t recommended in our blog here.

So, it’s best that the money for your stamp duty comes from the deposit you’ve saved. We realise that stamp duty is a sizable chunk of change, which is why it’s best to include it in your savings plan. If you have a rough idea of how much you’re planning to spend on your new house, you can estimate the stamp duty you’ll be charged and make sure you have the money saved.

We hope we’ve filled in a few of the blanks you may have had about stamp duty. For hints and tips on mortgages and the house buying process, keep an eye on our blog.

Disclaimer: All information and links are correct at the time of publishing.