When you buy a home, you might have to pay stamp duty to the taxman. But there are ways to reduce your stamp duty bill or avoid it completely.
In this article, we explain:
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Two minutes stamp duty explainer
Stamp duty is a tax that you might have to pay when you buy a property. There are thresholds so if you buy a property that is below a threshold then you wont have to pay stamp duty.
We outline the thresholds in England, Wales, Scotland and Northern Ireland in our guide on stamp duty.
Prefer to watch rather than read? Heres our stamp duty video:
Six ways to legitimately avoid stamp duty
During the pandemic, we had a stamp duty holiday in place. However, from October 2021 we were back to paying the old rates when buying a home.
But that doesnt mean there arent other ways to lower your bill or avoid paying stamp duty altogether:
1. Haggle on the property price
The amount you are charged in stamp duty depends on a number of factors, including:
- whether you are a first time buyer
- what you pay for the property
- whether you are buying a second home or holiday home
As with many taxes, there are different rates of stamp duty that are calculated on the part of the property price that falls within each band.
We outline the tax bands in this article on stamp duty and you can use a stamp duty calculator to work out how much you will have to pay.
The best way to avoid stamp duty is to haggle the asking price of the property so that you can avoid a higher tax band but there are other ways to negotiate.
For example, if youre buying a new build, the company selling the homes may offer to pay the stamp duty. And if it doesnt offer, you can always ask.
Find out how Robin Young got his housebuilder to pay his stamp duty, saving £9,500.
2. Transfer a property
If the deeds of your home have been transferred to you mortgage-free, you wont have to pay stamp duty on the market value of the property.
This often happens when properties are gifted or included in someones will.
But if a share of a property is transferred to you and you take on responsibility for some or all of the mortgage, you may well have to pay stamp duty.
Find out more about gifting property and what the tax implications are?
3. Buy out your ex
This may be a small comfort for anyone who is splitting up with their spouse or civil partner, but you can buy your exs share of a jointly owned home without it being subject to stamp duty.
People who are unmarried or not in a civil partnership may have to pay stamp duty though. Find out more in our article: Who gets my share of the property if I divorce or die?
Be nimble: Dont miss out on stamp duty savings
4. Claim back stamp duty
In certain circumstances, you might be able to apply for a refund of any stamp duty you have paid.
For example, you can claim back the extra 3% stamp duty additional home surcharge if you sell your main home within three years of buying a second one.
So if you bought an additional home, perhaps because you had trouble selling your previous one, you would have to pay the 3% levy.
But if you sell your previous main residence within 36 months, and the additional home is now your main home, you could apply to HMRC for a stamp duty refund.
Certain rules apply on how long you have to reclaim, so make sure you check with HMRC.
5. Pay for fixtures and fittings separately
Stamp duty is only payable on the property purchase, so removable fixtures and fittings are not subject to the tax. This means they could be deducted from the property price.
This could include features like:
If a seller is willing to leave items, you should agree to pay a reasonable sum for them and subtract the amount from the purchase price.
HMRC demands that this is done on a just and reasonable basis so make sure you seek the advice of a good lawyer or conveyancer.
6. Build your own
This may seem a little extreme. However, if you buy a piece of land with planning permission to build a home, you only pay stamp duty on the price of the land rather than the value of the finished property.
Watch out, Grand Designs!
You might be able to avoid stamp duty simply because you are a first-time buyer.
This is because first-time buyers in England and Northern Ireland have been exempt from paying stamp duty on residential properties worth up to £425,000 since September 2022.
If you avoid properties above the £425,000 bracket, you wont have to worry about this tax.
We outline the rates for new homeowners in this guide to stamp duty.
How to avoid stamp duty on a second home
There is a 3% stamp duty surcharge on additional properties and buy to let properties. We explain how this surcharge works here.
You could avoid paying the surcharge on a second home if:
- The property is worth less than £40,000
- If it is moveable property, such as a caravan, houseboat or mobile home
- A property where there is seven years or less left on the lease
- If you inherit a 50% or less share of a property
You may also be able to benefit from the three-year rule to avoid the stamp duty surcharge. This is where homebuyers can claim a stamp duty refund if they sell their main residence within three years of completing on a new property.
Another option could be to buy your second home first.
According to the wording of the rules set out by the Treasury, if you can prove that the second property you buy is a main residence, and not an additional one, you will pay only a standard stamp duty rate.
Find out how a Times Money Mentor reader got his housebuilder to pay his stamp duty bill.
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