Under the current system – which applies to England & Northern Ireland – you'll only pay the rate for the proportion of the property that's at that rate. It's quite complex, so here's an example to better illustrate how it works:
Let's assume you're buying a property for £500,000.
You pay nothing below £125,000.
You pay 2% on between £125,001 and £250,000, which is £2,500.
You pay 5% on the value of the property between £250,001 and £500,000, which is £12,500.
So in total this means you'll pay £15,000 (£0 + £2,500 + £12,500).
As the price you pay for a new property increases, so do the rates of stamp duty. You pay a percentage of the cost, and the rate payable leaps up at a set of thresholds – but, you only pay the proportion of the purchase price that's actually above the thresholds at the higher rate.
People buying an additional property (ie, in addition to any they already own) will be penalised in the form of an extra stamp duty charge on any property costing more than £40,000.
Under stamp duty rules that took effect in 2014 you pay different rates for different proportions of the property price. This will mean that the following additional property stamp duty rates will apply on each portion of the purchase price on buy-to-let and second homes.