Deposit vs Stamp Duty: How to Allocate Your Savings
Should you put every pound into your deposit or hold back savings to cover stamp duty? The answer depends on LTV thresholds, rate steps, and whether you qualify as a first-time buyer.
Key Takeaways
- •Always reserve the exact SDLT amount first, then allocate remaining savings to the deposit
- •LTV thresholds at 90%, 85%, 80%, and 75% create real rate differences that matter over 25 years
- •First-time buyers under £300,000 owe zero SDLT, so put all savings into the deposit
- •Crossing an LTV threshold by a modest increase in deposit can save more than the SDLT cost
- •Never sacrifice a meaningful LTV tier to maximise deposit unless you have a separate SDLT fund
The Savings Dilemma
Most buyers approach saving for a property with a single goal: maximise the deposit. But stamp duty creates a competing demand on the same pot of money. If you commit all your savings to the deposit and discover on exchange day that you owe £7,500 in SDLT you had not set aside, you face a serious problem: you cannot complete.
The opposite error is equally costly. Reserving money for SDLT that you did not need to reserve, because for example you qualify for first-time buyer relief, leaves potential deposit money sitting idle, artificially inflating your LTV and costing you a better mortgage rate.
The correct approach is a two-step budget:
- Calculate your exact SDLT liability using the stamp duty calculator
- Subtract that from your savings; the remainder is your maximum deposit
From there, the strategic question becomes: is there a meaningful LTV threshold you could cross with additional savings, and would the interest saving over the mortgage term outweigh the cost of borrowing for stamp duty?
LTV Rate Thresholds: Where It Matters
Lenders price mortgages in tiers. Falling inside a lower tier by even a fraction unlocks meaningfully better rates. The most impactful thresholds for most buyers are:
| LTV Threshold | What It Means | Typical Rate (Mar 2026) | Monthly vs 90% LTV* |
|---|---|---|---|
| ≤60% LTV | 40% deposit | ~4.3% | Save ~£191/mo |
| ≤75% LTV | 25% deposit | ~4.5% | Save ~£157/mo |
| ≤80% LTV | 20% deposit | ~4.7% | Save ~£123/mo |
| ≤85% LTV | 15% deposit | ~5.0% | Save ~£71/mo |
| ≤90% LTV | 10% deposit | ~5.4% | Baseline |
| ≤95% LTV | 5% deposit | ~5.9% | +£90/mo more |
*Indicative monthly savings on a £300,000 repayment mortgage over 25 years. Actual rates vary by lender and individual profile.
The step most buyers can realistically reach is 90% to 85%. On the indicative rates above that is a gap of about 0.4% (5.4% against 5.0%), worth roughly £71 a month, or about £850 a year, on the £300,000 mortgage used in the table. That is the number to weigh against the cost of funding your stamp duty some other way.
The most common scenario where SDLT allocation matters is the 85% to 90% LTV boundary. Buyers who plan for 85% LTV (a 15% deposit on £300,000 = £45,000) but face a £5,000 SDLT bill are left with £40,000, a 13.3% deposit sitting at 86.7% LTV. That is above the 85% boundary, so they fall into the 90% tier and the SDLT has cost them the better rate. Finding the extra £5,000, by borrowing it or otherwise, is what keeps them in the 85% tier.
Decision Framework
Use this step-by-step framework to allocate your savings:
Calculate your SDLT liability
Use the stamp duty calculator with your exact purchase price and buyer type. This is a fixed number; you cannot negotiate it with the government.
Reserve the SDLT amount
Move this sum to a separate account before calculating your deposit. This is non-negotiable: you must pay it on or before completion.
Calculate your LTV with remaining savings
Divide remaining savings by purchase price. Which LTV tier does this put you in?
Check the next LTV threshold
How much extra savings would you need to drop into the next tier? Calculate the annual interest saving at the better rate on your loan amount.
Compare the cost of bridging the gap
Could you fund the gap via a personal loan, a family gift, or delayed purchase? Model whether the rate saving exceeds the borrowing cost.
Budget for other purchase costs
Legal fees (£1,500 to £3,000), survey (£400 to £1,500), and moving costs should all come from separate savings, not your deposit buffer.
Allocation Scenarios Over 5 Years
The table below compares two standard buyers purchasing a £350,000 property, each with £52,000 in savings. Buyer A puts all savings into the deposit; Buyer B reserves £7,500 for SDLT.
| Metric | Buyer A: All to Deposit | Buyer B: SDLT Reserved First |
|---|---|---|
| Total savings | £52,000 | £52,000 |
| SDLT paid | £0 (unfunded, cannot complete) | £7,500 reserved |
| Deposit available | £52,000 (but cannot complete) | £44,500 |
| LTV | Transaction fails | 87.3% (inside 90% tier) |
| Mortgage rate | N/A | ~5.4% (2-yr fixed) |
| Monthly repayment | N/A | ~£1,858 |
| 5-year mortgage cost | N/A | ~£111,500 |
In this scenario, Buyer A cannot complete the transaction at all because their SDLT bill was not funded. The lesson: SDLT is not optional, and it takes priority over deposit size. Buyer B proceeds smoothly with an 87.3% LTV, which falls inside the 90% tier and accesses competitive rates.
First-Time Buyers Under £300,000
If you are a first-time buyer purchasing a property for £300,000 or less in England, you pay zero stamp duty. This dramatically simplifies the allocation question: put everything into your deposit.
FTB strategy under £300,000: All savings to deposit
- • No SDLT liability, so no need to reserve a stamp duty fund
- • Every pound of savings directly reduces your LTV
- • Maximum deposit = maximum rate advantage
- • The only caveat: budget separately for legal fees (£1,500 to £3,000) and survey
For FTBs purchasing between £300,000 and £500,000, the SDLT bill is significantly lower than for standard buyers. A FTB at £400,000 pays £5,000 in SDLT (5% on the £100k above £300k), versus £10,000 for a standard buyer at the same price. The priority rule still applies: reserve the SDLT first, then allocate the rest to the deposit. Read more at our first-time buyer SDLT guide.
Annexe, land or an old home not sold yet?
These are the purchases where a standard calculator can get your stamp duty wrong. Get it checked before you exchange.
Interactive Allocation Tool
See how allocating your savings affects your LTV, rate tier, and approximate 5-year mortgage cost.
SDLT Due
£7,500
Standard rate
Without SDLT reserved
85.7% LTV
≤90%: higher rates
After reserving SDLT
87.9% LTV
≤90%: higher rates
Cost of reserving for SDLT: By allocating £7,500 to SDLT rather than deposit, your mortgage rate rises from approximately 5.4% to 5.4%. This adds roughly £46/month, costing an estimated £2,737 more over 5 years. Compare this against alternative funding routes for the SDLT.
Frequently Asked Questions
Should I use my savings for a deposit or stamp duty first?
Reserve the exact SDLT amount first, as it is a legal obligation that must be paid on completion. Once that is set aside, allocate the remaining savings to your deposit. If you qualify as a FTB purchasing under £300,000, your SDLT is zero and the entire question is moot. Put everything into the deposit.
What is the best deposit-to-stamp-duty ratio?
There is no single optimal ratio. It depends on your purchase price, buyer type, and total savings. The principle is: cover SDLT in full, then direct remaining savings toward crossing the next meaningful LTV threshold. Shaving a fraction off your LTV without crossing a tier boundary saves nothing, so 90.5% to 89.9% is not worth chasing. The step that pays is 90% to 85%: on the indicative rates above that is about 0.4% (5.4% against 5.0%), roughly £71 a month or about £850 a year on a £300,000 mortgage, and you keep that saving for as long as you hold the loan.
Is it worth getting a bigger deposit even if I have to borrow money for stamp duty?
Only if crossing an LTV threshold saves more in interest than the borrowing costs you. For example: dropping from 90% to 85% LTV on a £300,000 mortgage by adding a £15,000 deposit boost saves about £71 per month, or £850 per year. A personal loan of £5,000 to fund the SDLT at 8% over 3 years costs about £641 in interest, so it pays for itself inside the first year and the rate saving continues for as long as you hold the loan. Always model both paths explicitly before deciding.
Reviewed by
Julie White
ACASDLT Expert since 1999Stamp Duty Land Tax Specialist
ACA and Tax Adviser with a career spanning nearly four decades, specialising in SDLT planning and advisory work since 1999.