Stamp duty (SDLT) is a tax that becomes payable when you buy a property or some land in England or Northern Ireland. The amount you pay is determined by the purchase price and whether the transaction is classed as residential or non-residential. The price can also be affected if you’re a first-time buyer. With so many cost considerations on top of the purchase price, you may be wondering if the stamp duty cost can be added to your mortgage.
How much does stamp duty cost?
Stamp duty has different tax bands and these are known as the SDLT thresholds, which currently start at:
- £150,000 for non-residential properties and land
- £250,000 for residential properties
- £425,000 for first-time buyers purchasing residential properties with a value of £625,000 or less
If your purchase has a value that falls under the relevant threshold, you won’t be liable to pay any stamp duty.
Stamp duty costs for residential freehold properties
When buying a residential freehold property, the current stamp duty rates are:
- £0–£250,000: 0%
- £250,001–£925,000: 5%
- £925,001–£1.5 million: 10%
- Above £1.5 million: 12%
This means that if you buy a home in Pimlico for £600,000, for example, the amount you’ll have to pay is calculated as:
- 0% on the first £250,000: £0
- 5% on the remaining £350,000: £17,500
Therefore, the total amount payable for stamp duty is £17,500.
Stamp duty costs for new leasehold sales and transfers
When you purchase a residential leasehold property, you have to pay stamp duty on the lease purchase price, which is known as the lease premium. The stamp duty rates detailed above apply to lease premiums. If the net present value (NPV), which is the total rent over the life of the lease, is higher than the current threshold of £250,000, then 1% is payable on the amount that’s over £250,000. This doesn’t apply to existing leases.
Stamp duty costs for first-time buyers
When buying your first home, you benefit from stamp duty relief:
- £0–£425,000: 0%
- £425,001–£625,000: 5%
For example, if you buy your first home for £475,000 in Bexleyheath, the stamp duty you’ll have to pay will be:
- 0% on the first £425,000: £0
- 5% on the remaining £50,000: £2,500
This means that the stamp duty payable for your new home as a first-time buyer is £2,500.
However, if you purchase a property that’s valued at over £625,000, the relief won’t apply. Therefore, you’ll have to pay the normal stamp duty rates.
Additional properties and non-residential stamp duty costs
Different rates apply when buying an additional property or making a non-residential transaction.
When is the stamp duty paid?
Stamp duty has to be paid within 14 days of completing your property purchase. Usually, it’s paid on your behalf by your solicitor, conveyancer or agent and they simply add the tax amount to their fees. If you prefer, you can file the return with HMRC and pay it yourself. But what if you don’t have that amount to hand? Can you add the cost of your stamp duty to your mortgage?
Can you add stamp duty to your mortgage?
The answer is yes, you can, provided that you still meet the affordability criteria for the higher loan amount. What you need to consider, though, is whether you should add stamp duty to your mortgage or not. Doing this isn’t really advisable. For a start, by adding this extra amount to your mortgage, you’re increasing the amount that you’re borrowing. This immediately puts you in more debt.
Adding the stamp duty amount onto your mortgage may also affect your loan-to-value (LTV) ratio. The LTV is the amount you’re borrowing compared with your property’s value. When you include the extra amount for stamp duty, it may push you out of one LTV bracket and into the next one. As a result, you’ll end up paying a higher interest rate.
You also need to remember that you have to pay interest throughout your mortgage term. When you add your stamp duty cost on top of your mortgage, you pay interest on this too. Over the entire term, the amount of extra interest that you have to pay may end up being significantly more than the original cost of the stamp duty.
Can stamp duty be added to your mortgage in Scotland and Wales?
In Scotland, Land and Buildings Transaction Tax (LBTT) is charged instead of SDLT while in Wales, Land Transaction Tax (LTT) is charged. Although the systems and rates are different in Scotland and Wales, it doesn’t mean that you can’t add your tax cost to your mortgage if you need to.
Get expert guidance on adding stamp duty to your mortgage
Adding the stamp duty cost to your mortgage can be appealing if you’re short of funds and it means you can repay the cost over a long term. However, doing so isn’t recommended because, in the end, it’s an expensive option. Before making a decision, speak with our mortgage brokers on 01322 907 000.
They may be able to find a lender who offers a higher LTV so that you can pay a lower deposit. That way, you can use some of the money you’d saved to pay your stamp duty bill instead. They can also compare the rates of different mortgage products to give you an idea of the total cost you’re looking at over the term. As well as that, they can advise you on how to reduce your stamp liability by working out the chargeable consideration and guide you on the stamp duty reliefs and exemptions available. Use our residential stamp duty calculator or our commercial stamp duty calculator for an indication of your stamp duty liability.