FAQ - Do I have to pay 3% extra Stamp Duty?

FAQ - Do I have to pay 3% extra Stamp Duty? [Photo: designer491 via iStock]

Everyone who buys a home over the price of £125,000 has to pay Stamp Duty on their purchase, but not everyone pays the new higher rate of Stamp Duty. You only have to pay the additional charge if you are investing in a home that is not going to be your primary residence. 

This is a rule that primarily affects landlords and other rental sector investors who are purchasing properties they don't intend to live in as their main home. This three per cent additional charge is on top of what you would pay for Stamp Duty when buying a house normally, and it came into play at the start of April 2016.

What is Stamp Duty?

Stamp Duty Land Tax, to give it its full name, is a tax levied on anyone who buys residential property that costs more than £125,000. It is calculated based on the price of your home in a band system, and is always payable by the buyer rather than the seller. 

What is the Stamp Duty surcharge?

The Stamp Duty surcharge was introduced in April 2016 as a way to make affordable homes more available for new buyers looking to get onto the property ladder.

The government was concerned that homes first-time buyers would normally purchase were being snapped up by rental sector investors, so brought in a higher rate of Stamp Duty (three per cent on top of the standard charge) for anyone investing in an "additional residential home" over and above their primary address. 

What if I'm moving house?

For those who are moving from one home to another, as long as you have sold your home before you move, you do not have to pay the surcharge. However, the rules get a little more complicated if you move home and do not immediately sell your previous property. 

In these cases, you will need to pay the additional Stamp Duty surcharge. However, as long as you have sold the property within 36 months of buying your new home, you can claim a refund from HMRC for the additional three per cent charge. 

How much Stamp Duty do I have to pay?

The amount of Stamp Duty you pay depends on the house you're buying. For example, if you are investing in a home you'll live in, then you'll pay a rate based purely on its value. Whereas if you are buying property that will result in you having more than one home, then you'll pay this plus an additional three per cent in each price band. 

Stamp Duty is calculated based on the price you paid for your home (known as the chargeable consideration), and you pay a fixed percentage for the portion of your home's value that falls into each price band. For example, if your home is worth £300,000, you are charged two per cent on the portion between £125,000 and £250,000 (£2,500) and five per cent on the portion between £250,000 and £300,000 (£2,500), giving you a total charge of £5,000 Stamp Duty. 

To find out an estimate of what you'll pay when buying a home, you can use this government Stamp Duty calculator.