How is Stamp Duty Calculated?
A step-by-step guide to understanding how stamp duty works.
In this article
The Key Concept: Tiered Rates
Stamp duty uses a tiered (or marginal) system, similar to income tax. You don't pay a single rate on the whole property price. Instead, different portions of the price are taxed at different rates. This is why the effective rate is always lower than the highest band rate.
The Stamp Duty Bands (England & NI)
As of January 2026, these are the standard SDLT rates for residential properties:
| Band | Rate |
|---|---|
| £0 - £125,000 | 0% |
| £125,001 - £250,000 | 2% |
| £250,001 - £925,000 | 5% |
| £925,001 - £1,500,000 | 10% |
| Over £1,500,000 | 12% |
Step-by-Step Calculation
Let's work through an example for a £400,000 property purchase:
Example: £400,000 Property
Understanding Effective Rate
The effective rate is the total tax divided by the property price. It's always lower than the highest band rate because lower portions of the price are taxed at lower rates.
In the example above, even though part of the price falls in the 5% band, the effective rate is only 2.5% because the first £125,000 is tax-free and the next £125,000 is only taxed at 2%.
Additional Calculations
First-Time Buyer Relief
First-time buyers (on properties up to £500,000) use different thresholds:
- £0 - £300,000: 0%
- £300,001 - £500,000: 5%
So a first-time buyer purchasing at £400,000 would pay: £100,000 × 5% = £5,000 (saving £5,000 compared to standard rates).
Additional Property Surcharge
For second homes and buy-to-let properties, add 5% to each band:
- £0 - £125,000: 5% (instead of 0%)
- £125,001 - £250,000: 7% (instead of 2%)
- £250,001 - £925,000: 10% (instead of 5%)
- And so on...
Scotland and Wales
Scotland (LBTT) and Wales (LTT) have their own tax systems with different bands and thresholds. The calculation method is the same (tiered rates), but the specific rates and thresholds differ.
Quick Reference
- Scotland nil-rate: £145,000 (£175,000 for FTB)
- Wales nil-rate: £225,000
- Scotland ADS: 8%
- Wales higher rates: Separate bands
Common Mistakes
- Applying one rate to the whole price: Remember, only the portion within each band is taxed at that rate
- Forgetting the surcharge: Additional properties always pay the 5% surcharge
- FTB threshold confusion: Properties over £500,000 don't get any FTB relief
- Wrong region: Scotland and Wales have different rates
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Emma Richardson, MRICS
Chartered Surveyor & Property Tax Specialist
Emma Richardson is a RICS-qualified Chartered Surveyor with over 12 years of experience in UK property taxation. She founded Stamp Duty Calculator to help buyers understand the complex world of property transaction taxes.