How stamp duty works and who pays it

Stamp duty is one of the UK's "most hated" taxes and more first-time buyers could end up paying the controversial charge under a Labour government.

The property tax is an "unwelcome cherry on the cake", said The Telegraph, after having to find a mortgage deposit and paying for legal fees when buying a home. 

First-time buyers currently benefit from a stamp duty exemption on the first £425,000 of a purchase. The threshold was raised from £300,000 in September 2022.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

This was due to be reversed in April 2025, but while the Conservative Party has said it will maintain the threshold, Labour has confirmed it will be reduced back to £300,000 if it forms the next government.

That could "reduce the choice of properties" for first-time buyers, said MoneyWeek, or mean more end up paying the "controversial property tax".

More than £11 million was paid in stamp duty during the 2022/23 financial year, while first-time buyer relief was worth £708 million.

Here is how stamp duty works and what it means for homebuyers.

What is stamp duty?

Stamp duty is a tax you may have to pay if you purchase a property or a piece of land in England or Northern Ireland above a certain price.

Buyers in Scotland pay a Land and Buildings Transaction Tax and in Wales there is a Land Transaction Tax. 

UK nations have a "progressive system of stamp duty", explained MoneySavingExpert. So, rather than paying a single rate on the entire purchase, you pay different rates on different parts of the property's value.

Who pays stamp duty?

Stamp duty is paid by the person buying the property, and your solicitor will file a return to HMRC when your purchase completes.

The amount depends on the value of the property and whether you're a first-time buyer, explained NerdWallet. Sometimes stamp duty "doesn't need to be paid at all". 

In England and Northern Ireland, there is nothing to pay on the first £250,000 of a property purchase. Then buyers pay 5% on anything between £250,001 to £925,000, 10% on the next £575,000 and 12% on anything above £1.5 million. 

First-time buyers currently don't pay any stamp duty on the first £425,000 of a purchase and will owe 5% on the portion from £425,001 to £625,000. 

Landlords and anyone purchasing an additional property that isn't their main home must pay 3% on top of the existing rates. 

You can usually borrow more on your mortgage to cover the stamp duty, added MoneySavingExpert, but it is "vital to be aware of the cost", as it means you also pay interest on that money. 

Will stamp duty change in future?

The first-time buyer stamp duty exemption would drop back to £300,000 from April 2025 under a Labour government, said The Guardian, after the party confirmed "it would allow the tax break to expire".

It comes after the Conservative Party manifesto proposed keeping the threshold at £425,000. While Labour had previously declined to comment on whether it would match this, said The Times, the party was forced to "rule it out" after leader Keir Starmer mistakenly suggested he would end a tax break for pensioners when he meant to "refer only to temporary tax reliefs".

Lowering the relief threshold would leave first-time buyers in London almost £7,000 worse off, said The Telegraph.

With the average London property priced at £434,743, a first-time buyer would pay 5% on the amount above the relief threshold.

The tax would currently be £486 but under Labour, from April 2025, added the newspaper, the changes would end up "forcing buyers in the capital to pay an extra £6,737.15 to get on to the housing ladder".

Most first-time buyers may not need to panic though, as stamp duty is "primarily paid" by those purchasing larger homes or in "more expensive areas," said BBC News.

The average house price across the UK, according to the Land Registry, is currently around £281,000 as of April 2024, added the news website, which "would not be subject to any stamp duty".