Incoming changes to UK stamp duty land tax are expected to boost house sales in the first three months of 2025—ahead of a change to the rules in April.
A temporary cut to stamp duty will end on Mar. 31, leaving hopeful homebuyers fewer than 12 weeks to complete purchases before the change.
“We’ll inevitably see a flurry of people looking to lock in their home purchase before the deadline in March—with estate agents and solicitors braced for some long days ahead of the finish line,” says AJ Bell’s Director of Personal Finance Laura Suter.
“We saw a similar story when stamp duty breaks were introduced during the pandemic and then expired, with a boom in house sales ahead of the deadline. This rush to complete in time could push prices up and lead to more competition in the housing market.”
The changes come as fund managers, traders, and institutional investors debate the potential effects of interest rate cuts by the Bank of England on the housing market.
What is UK Stamp Duty Land Tax?
In practice, UK stamp duty has little to do with postal stamps. It’s a tax paid by property buyers when they purchase a freehold property, a new or existing leasehold property, or a property via a shared ownership scheme.
It’s also paid when they transfer land or property in exchange for money.
The policy is lucrative for the government. In Q3 2024, stamp duty on shares and property brought £4.7 billion into the Treasury’s coffers.
In Scotland and Wales, the rules are different. Residents in Scotland pay the land and buildings transaction tax, while those in Wales pay land transaction taxes if their sales completed after Apr. 1 2018.
You pay no stamp duty if you purchase property at a price that is lower than the threshold. However, the thresholds are now being revised downward.
What are the Current Stamp Duty Thresholds?
There are various UK stamp duty calculators available online. But here’s how the policy actually works.
Today, first-time buyers pay no stamp duty when buying a home worth up to £425,000.
For everyone else, residential properties purchased for less than £250,000 incur no stamp duty. Purchases more valuable than this threshold are dealt with in portions.
For purchases higher than £250,000, the next portion, from £250,001 to £925,000, incurs a 5% charge.
As of November 2024, the average UK house price was £267,500. A home sold for this amount today would therefore incur a 5% stamp duty charge of £875, because there would be a 5% charge on the amount above the threshold: £17,500.
After that, the next £575,000 of a house purchase price—the portion from £925,001 to £1.5 million—incurs a 10% stamp duty charge, while the remaining amount (the portion above £1.5 million) incurs a 12% stamp duty charge.
As a case study, if a property was purchased today for £2 million, it would incur several charges.
5% on the £250,001 to £925,900 portion (5% of £674,999) would mean a charge of £33,749.95. You would then add a 10% stamp duty charge on the second portion (10% of £574,999), which would result in a charge of £57,499.90. A final 12% charge would be due on the portion above £1.5 million (12% of £500,000), which would result in a charge of £60,000.
The total stamp duty paid on this £2 million property under the current rules would be the sum of these three charges: £151,249.85.
What are the New UK Stamp Duty Thresholds?
From 1 April, this system will change, amid an apparent squeeze on the public finances and a commitment from The Labour Party not to raise the headline rates of National Insurance, Income Tax, or VAT. The stamp duty system is therefore low-hanging fruit.
From April the threshold for first-time buyers will drop to £300,000 from £425,000, a change that will inevitably make home ownership for new entrants more expensive.
Life will also get pricier for those trying to move up the property ladder. For them, the initial threshold at which stamp duty is paid will fall to £125,000 from £250,000.
The next £125,000 (the portion from £125,001 to 250,000) will incur a 2% charge.
The next £675,000 (the portion from £250,001 to £925,000) will incur a 5% charge.
The next £575,000 (the portion from £925,001 to £1.5 million) will incur a 10% charge.
The remaining amount (the portion above £1.5 million) will incur a 12% charge.
This new system means that a house purchased on April 1 2025 at November’s average house price of £267,500 would incur a 2% charge of £2,500 and a 5% charge of £875. The total stamp duty due under the new system would be £3,375.
Under that new system, the house purchased for £2 million would be charged even more. It would trigger an initial charge of £2,499 (2% of £124,999); a second charge of £33,749.95 (5% of £674,999); a third charge of £57,499.90 (10% of £574,999); and a final charge of £60,000 (12% of £500,000). The total stamp duty due would be the sum of these charges: £153,748.85.
At the above examples illustrate, the house purchasers hit most significantly by the changing policy will be those on lower and middle incomes.
How Could UK Stamp Duty Land Tax Change Beyond April 2025?
Stamp duty is among several taxes routinely tinkered with by different governments.
During the pandemic, Rishi Sunak, then chancellor, launched a “stamp duty holiday” in a bid to stimulate the housing market. Temporarily, stamp duty was not chargeable on property purchases up to £500,000.
Others want a complete reworking of the system, however.
The Association of Accounting Technicians has long wanted to shift the burden of paying stamp duty to sellers. As far back as 2019, it claimed the change “would remove every single first-time buyer across the country from stamp duty liability while crucially also helping those already on the property ladder to move up.”
Opponents of this policy point out that it would have an immediate effect on seller behavior. Vendors would overprice their properties to account for paying the tax, they say. That would potentially distort the housing market, making housing even more expensive.
How Does UK Stamp Duty Land Tax Differ From Stamp Duty on Shares?
Property purchase is not the only event where savers and investors encounter stamp duty. UK stamp duty is also due on the purchase and transfer of stocks, but the rules are different.
If you purchase stocks electronically via an online brokerage service or investment platform, you will be charged 0.5% stamp tax. This is normally baked into the cost you pay at the point of purchase.
Share purchases involving a physical certificate also incur 0.5% stamp duty. However, the threshold at which the tax is due is £1,000.
If you transfer shares by buying them privately from another person, stamp duty of 0.5% will be due on the value of the share, but it will be up to you to do this calculation and inform (and pay) HM Revenue & Customs.
Here too there is pressure on the government to scrap the system to make share ownership more attractive, amid broader changes to the UK’s listing regime. The results of the system are already a topic of discussion.
In December last year, Revolut chief executive Nik Storonsky said listing his company in London would not be “rational,” and in the same breath said the UK’s stamp duty charges on share purchases made it an uncompetitive place to invest.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
