For those of us looking to become first time buyers of a home to call our own, the majority of our effort is spent saving for a deposit.

A large expense which shouldn’t be ignored, is the Stamp Duty (in England and Northern Ireland), also known as the ‘Land and Buildings Transaction Tax’ in Scotland, and the ‘Welsh Land Transaction Tax’ in Wales.

What is Stamp Duty (or Land Transaction Tax)?

Stamp Duty is a lump sum that is due to be paid within 30 days of completion of the property purchase (i.e. when you get the keys, and enter your property).

It is a requirement for anyone to pay if the value of the property that they have purchased is above a certain threshold.

It was traditionally levied as a fixed percentage of the total property price, but was reformed back in 2014 to a more progressive system which benefits home buyers of lower value properties (a way of helping those struggling to get on the housing ladder).

The Stamp Duty or Land Transaction Tax is levied differently depending on which country has applied it:

England and Northern Ireland: Stamp Duty

As mentioned, there is a progressive taxation at play which determines the amount of tax to pay.

For an existing homeowner, buying a home costing £500,000:

Value Band	Tax Rate	Calculation	Amount
£0 – £125,000	0%	(£125,000 – £0) * 0%	£0
£125,001 – £250,000	2%	(£250,000 – £125,001) * 2%	£2,500
£250,001 – £925,000	5%	(£500,000 – £250,001) * 5%	£12,500
£925,001 – £1,500,000	10%	0 * 10%	£0
£1,500,001+	12%	0 * 12%	£0
		TOTAL	£15,000

For a first time buyer, there is a tax shield up to £500,000 which means that there is no Stamp Duty levied on any property valued up to this value.

This shield is due to end on the 31st March 2021, by which point it will revert to the previous rule.

From the 1st April 2021 (barring any extension to the existing tax shield), the first £300,000 of a property has no Stamp Duty charge.

Everything up to £500,000 is then charged at the 5% rate similar to that charged above £250,000 for an existing homeowner:

Value Band	Tax Rate	Calculation	Amount
£0 – £300,000	0%	£300,000 * 0%	£0
£300,001 – £500,000	5%	(£500,000 – £300,001) * 5%	£10,000
		TOTAL	£10,000

A key point to remember though, is that if you purchase a home for £500,001, then you revert back to the rule that is levied against the existing homeowner!

Wales: Welsh Land Transaction Tax

Similar to the bandings used for the English and Northern Irish model, the Land Transaction Tax is calculated in a progressive manner:

Value Band	Tax Rate	Calculation	Amount
£0 – £180,000	0%	£180,000 * 0%	£0
£180,001 – £250,000	3.5%	(£250,000 – £180,001) * 3.5%	£2,450
£250,001 – £400,000	5%	(£400,000 – £250,001) * 5%	£7,500
£400,001 – £750,000	7.5%	(£500,000 – £400,000) * 7.5%	£7,500
£750,001 – £1,500,000	10%	0 * 10%	£0
£1,500,001+	12%	0 * 12%	£0
		TOTAL	£17,450

Scotland: Land and Buildings Transaction Tax

Again, in a similar approach, the Scottish Government implemented a new reform in April 2015 which used progressive bandings to define the tax to be calculated:

Value Band	Tax Rate	Calculation	Amount
£0 – £145,000	0%	£145,000 * 0%	£0
£145,001 – £250,000	2%	(£250,000 – £145,001) * 2%	£2,100
£250,001 – £325,000	5%	(£325,000 – £250,001) * 5%	£3,750
£325,001 – £750,000	10%	(£500,000 – £325,001) * 10%	£17,500
£750,001+	12%	0 * 15%	£0
		TOTAL	£23,350

What if I am Buying a Second Home?

The examples above only consider circumstances where the home buyer is either buying their first home, or if they are selling their existing home, to buy a new one.

In the case where someone buys a second home (or third, fourth, etc.), the rates of stamp duty are increased.

The stamp duty was increased for those buying additional properties as a potential penalty to deter the buy-to-let which is one of the factors affecting the housing crisis affecting young professionals.

Here are the subsequent bandings when comparing between an existing homeowner buying a new home, and an existing homeowner buying an additional home in England and Northern Ireland:

Value Band	Tax Rate (new home)	Tax Rate (additional home)
£0 – £125,000	0%	3%
£125,001 – £250,000	2%	5%
£250,001 – £925,000	5%	8%
£925,001 – £1,500,000	10%	13%
£1,500,001+	12%	15%

For Wales, the penalties are different:

Value Band	Tax Rate	Tax Rate (additional home)
£0 – £180,000	0%	3%
£180,001 – £250,000	3.5%	6.5%
£250,001 – £400,000	5%	8%
£400,001 – £750,000	7.5%	10.5%
£750,001 – £1,500,000	10%	13%
£1,500,001+	12%	15%

Similarly for Scotland:

Value Band	Tax Rate	Tax Rate (additional home)
£0 – £145,000	0%	3%
£145,001 – £250,000	2%	5%
£250,001 – £325,000	5%	8%
£325,001 – £750,000	10%	13%
£750,001+	12%	15%

Can I Include my Stamp Duty in my Mortgage?

For those of us that might have reached our goal of saving for a deposit, there might be some that were unaware of the amount of Stamp Duty required after completion.

Instead of getting back to saving, a common question asked is “Can I add the Stamp Duty to the mortgage?”

In essence, yes you can. Should you? Probably not.

Let’s continue with the £500,000 home example. You have saved a £50,000 deposit (10%, so 90% Loan-to-Value mortgage), but you realise that as a First Time Buyer in England, you need to pay £10,000 additional in Stamp Duty. All of a sudden, you only have £50,000 out of the £60,000 that you need.

If we consider a mortgage at 5% APR for a 25 year term, the £10,000 extra you add to the mortgage for the Stamp Duty payment, will cost you £17,400 once the mortgage is paid off (that is £7,400 extra paid as interest!)

If you expect average house prices to rise by more than £7,400 in the time it would take for you to save the extra £10,000, then it might be worth it!