If you are looking to buy your first property you will likely have seen stamp duty mentioned a lot lately. An April rise in the rate payable was responsible for a first-quarter surge in buying demand.

But you may not be clear about what it actually is and how it applies to you. If you are looking to sell you may also not be sure what the latest changes mean for your sale. If so, fear not. We’re here to explain.

What is stamp duty?

To give it its full title, Stamp Duty Land Tax (SDLT) is a tax paid to HMRC on increasing portions of the property price when you buy a residential property in England or Northern Ireland. Alternative versions apply in Scotland where Land and Buildings Transactions Tax (LBTT) is payable and in Wales where Land Transaction Tax (LTT) applies.

The stamp duty tax applies to freehold and leasehold properties and must be paid whether you are funding the purchase with a mortgage or buying outright. The threshold determines the level at which you will start paying SDLT and then you only pay the share of tax on the value that falls above the threshold. The thresholds were reduced at the beginning of April meaning that stamp duty costs rose, which is why many buyers were rushing to complete before higher costs came in.

What is the new threshold?

For standard purchases buyers will now pay stamp duty after the first £125,000 of their property’s value. This starts at 2% and rises alongside the value of the property. Previously the threshold was £250,000.

For first-time buyers there is no SDLT payable up to £300,000, although this threshold was also reduced at the start of April, down from £425,000 previously. SDLT of 5% is now payable on purchases between £301,000 and £500,00. However, the first-time buyer relief can’t be claimed on properties costing more than £500,000. Bear in mind too that if you are buying with someone else you must both be classed as first-time buyers to claim the relief.

What are the exemptions?

As well as the first-time buyer relief, you do not have to pay SDLT in a few other circumstances. These include if no money or other payment changes hands in a land or property transfer, if you are left the property in a will or if the property is transferred to you after a divorce or the dissolution of a civil partnership.

How can you minimise costs when buying?

To understand how much stamp duty you might need to pay on a property, you can use the government’s stamp duty calculator. Whether you will pay stamp duty will also depend on where you are looking to buy.

According to the latest UK House Price Index from the Office of National Statistics, the average house price in England currently stands at £292,000 so just under the threshold for first-time buyers which means that no stamp duty will be payable.

However, house prices vary considerably depending on what area of the country you are looking to buy. Average house prices are significantly higher in London, for example. There is no regional adjustment for stamp duty so properties here will cost you more in SDLT.

For sellers, it’s worth considering the impact of stamp duty when setting your price – for example, pricing just below the £300,000 mark to generate more interest, even if you feel the property may be worth slightly more.