The new stamp duty rates: make sure you’re better off

The Chancellor George Osborne says 98% of home buyers in England and Wales will be better off under the changes he introduced to stamp duty rates last December. And with a little background information and a few helpful tips, we can help you be one of them…

What are the stamp duty changes about?

Before making his changes to the stamp duty thresholds George Osborne described stamp duty as “a badly designed tax.” So what was so wrong with the old system – and how has the chancellor improved it?

Stamp Duty Land Tax (to give it its full and proper name) was introduced in December 2003. It’s a tax you pay in one lump sum when you buy a house costing more than £125,000. Everyone has to pay it, whether you’re a first time buyer or moving up the housing ladder. The stamp duty rate and the amount you pay varies according to the price of the property.

Under the old rules you paid successively higher rates on the whole of the purchase price. The system was criticised because it meant there were sudden increases in stamp duty when the house you wanted to buy went into the next threshold. For example even if your home cost £1 more than the stamp duty threshold you paid a higher rate on the entire property price, not just the £1 that went over.

Under the new system you'll only pay the rate for the proportion of the property price that’s at that rate. So it operates much more like Income Tax. It sounds more complex than it is, so here's an example to illustrate how the changes may affect you. Let's assume you're buying a property for £300,000:

Old system: You’d have paid 1% on a property between £125,000 and £250,000, but between £250,000 and £500,000 you'd pay 3%. So because the purchase price is over £250,000, you'd have paid 3% on the entire purchase price, despite only being £50,000 above the threshold. That means in total you'd have paid £9,000 in stamp duty.

New system: You pay nothing below £125,000; 2% on between £125,000 and £250,000, and 5% on the value of the property above £250,000. So in total this means you'll pay £5,000. (£0+£2,500+£2,500). Leaving you £4000 better off!

Are you a winner?

According to the BBC’s Personal Finance Correspondent Brian Milligan stamp duty information “Someone buying a family home for an average price in England and Wales will now pay £4,500 less in stamp duty. Only people who buy homes worth more than £937,000 will pay more in tax.”

You can see how much better off you could be with the current stamp duty rates in the table below.

How much is stamp duty?
You’ll pay:
  • nothing on the first £125,000 of the property price
  • 2% on the next £125,000
  • 5% on the next £675,000
  • 10% on the next £575,000
  • 12% on the rest (above £1.5 million)
  • To see exactly how much you’ll pay on your new home HMRC has a handy stamp duty calculator

When do you pay stamp duty?

When you buy a new home you’ll need to submit a Stamp Duty Land Tax return and pay what you owe within 30 days of completion. If it’s not paid, you’ll be charged a £100 penalty plus interest.

Usually your solicitor will deal with the Stamp Duty return and payment for you, although you can do it yourself. But either way, you’re responsible for making sure it’s all submitted on time.

What about stamp duty exemption?

Everyone including first time buyers pay stamp duty unless the purchase price is below £125,000. And even if the purchase price is below £125,000 you still need to submit a return even though you won’t need to pay any stamp duty.

Our top tips for reducing stamp duty

  1. Buy a house under £125,000. Of course, for many people that’s not an option, especially if you’ve got a family. So we’ve looked at some other ways and circumstances in which stamp duty is either not payable or can be legitimately reduced.
  2. Transfer some of your home’s value. This only applies if you’re divorcing or separating from your spouse or partner but there’s no stamp duty to pay if you transfer a proportion of your home’s value to them. The Money Advice Service have a helpful guide Your home and your divorce settlement.
  3. Transfer the deeds of your home to someone else – either as a gift or in your will – they won’t have to pay stamp duty on the market value of the property. However, if you exchange properties with another person, you’ll each have to pay stamp duty on the property you receive based on its market value. To find out more about transfer of deeds, go to the HMRC website.
  4. Visit the HMRC website. Find out about other situations where stamp duty may not be payable here.
  5. Stamp duty will be cut for 98% of the people who pay it. If you're buying a home for less than £937,500 you'll pay less stamp duty or the same.

More on this…
If you’d like to know more about stamp duty changes book an appointment with one of our mortgage advisers today. Pop into your local branch or call 0344 481 0013.

Footnote: Changes to stamp duty rates do not affect commercial properties.

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