Stamp duty, without the confusion

It works like income tax

The most common misunderstanding is thinking that crossing a threshold makes the whole price dearer. It does not. Each slice of the price is taxed at its own rate, exactly like income tax bands.

Buy at £300,000 as a home mover and you pay nothing on the first £125,000, 2% on the next £125,000, and 5% on the final £50,000. That is £0 plus £2,500 plus £2,500, so £5,000 in total - not 5% of £300,000.

First-time buyer relief

Nothing to pay up to £300,000, then 5% on the slice up to £500,000. Above £500,000 the relief disappears completely and standard rates apply to the whole purchase.

The conditions are strict:

• Every buyer must be a first-time buyer. If one of you has owned before, nobody gets the relief.
• It means never having owned residential property anywhere in the world, including inherited shares and property you never lived in.
• You must intend to live in it as your only or main residence.

The additional property surcharge

A flat 5% on the entire purchase price, on top of standard rates, if you will own more than one residential property at the end of the day you complete. It applies from £40,000 upwards, and it applies to the whole price rather than just the slice above a threshold.

It catches buy to let, second homes and holiday homes, and it also catches people who complete on a new home before selling the old one. On a £250,000 purchase the surcharge alone is £12,500.

When you can reclaim it

If you paid the surcharge only because you had not yet sold your previous main residence, you can reclaim it - provided you sell that former main home within three years of completing on the new one. You claim from HMRC, and you must do so within twelve months of the sale or of the filing deadline for the return, whichever is later. It is not automatic. People forget, and it is a lot of money to leave behind.

Scotland and Wales are different

This guide covers England and Northern Ireland. Scotland charges Land and Buildings Transaction Tax and Wales charges Land Transaction Tax, both with their own thresholds, their own first-time buyer treatment and their own surcharge rates. If you are buying there, use the Revenue Scotland or Welsh Revenue Authority calculator rather than ours.

Practical points

• It is due within 14 days of completion and your solicitor normally files and pays it for you out of the funds you send them.
• You cannot add it to the mortgage. It has to be cash, on top of your deposit. This is the number that most often derails a budget.
• Fixtures and fittings. Genuinely movable items can legitimately be valued separately and taken out of the chargeable price. It must be real and reasonable - inflating it is tax evasion and solicitors will not play along.
• Mixed-use and multiple dwellings. There are edge cases with lower effective rates. They are genuinely complex and if you think you are in one, get a tax adviser rather than relying on a website.