How does stamp duty work?

I made one of my former landlords a five-figure sum this week, just by knowing a little about stamp duty. With that in mind, I thought I’d provide an overview of how stamp duty is calculated and, perhaps more interestingly, how you might be able to claim some of it back!

You usually pay Stamp Duty Land Tax (SDLT) on increasing portions of the property price when you buy a residential property:

Some exemptions and reliefs apply; most notably for first-time buyers, whereby the first ￡425,000 is subject to no stamp duty (assuming the purchase price is below ￡625,000).

Unfortunately for many since April 2016 though, if buying a new property means you’ll own more than one property (anywhere in the world) and you have not sold your current main residence, then you must pay a further 3% of the purchase price as additional SDLT. Most commonly this will apply to those buying a second home or a buy-to-let property, but others can get caught out by the surcharge too. In short, if you have not sold your main residence on the day you complete your new purchase, you’ll have to pay the extra 3%.

This is clearly a great financial advantage to first-time buyers, but a deterrent to those wanting to invest in buy-to-let property. This is just one of the reasons why landlords sold 35,000 more properties than they bought in 2022, for which the supply/demand imbalance is being seen through rapidly rising rents.

Crucially for some though, it is possible to reclaim the 3% SDLT surcharge in certain circumstances. The most common (but still not widely known) is if you sell your former main residence within three years of having paid the additional SDLT.

So, when I saw the previous home of a former landlord of mine pop up for sale just two and a half years after they had moved, I gave them a quick call for a catch-up and mentioned the substantial refund due to them…which they had no idea about! I knew when they had purchased their new property and duly moved in that they had kept their old home (initially so a family member could live in it). This would have meant paying the 3% surcharge on their new property purchase as it meant they then owned more than one property and were not selling their former main residence. Having sold their old home within three years of this though, they can now claim back the additional 3% SDLT they had previously paid.

Many see stamp duty as an archaic and unjust tax grab that should either be reformed or scrapped altogether. It raises approximately ￡10 billion for the Treasury every year though, so a fair chunk of change would need to be found elsewhere to balance the books. With such large sums at stake though, it definitely pays to have a little knowledge on such matters.

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