One of the biggest announcements in this week's Autumn Statement was the reform to stamp duty thresholds – and it could make a huge amount of difference to your future house purchases. But just how much could you save? We've got a few calculations for you.
What do the changes mean?
Let's start by looking at what the changes to stamp duty actually mean. The previous system was criticised for being a cliff-edge arrangement, where if the value of your home hit a certain limit, you'd pay a higher rate of tax on the full value of the property – not just on the portion above the threshold. Happily, that's been changed to a more proportionate arrangement, meaning you'll only pay the higher rate on the amount that's above the limit.
From now on, the stamp duty rates are as follows:
Purchase price of property
Rate of SDLT (stamp duty land tax)
£0 - £125,00
£125,001 - £250,000
£250,001 - £925,000
£925,001 - £1.5m
Effectively, it means that if the property you bought was £126,000, you'd only pay 2% in tax on the £1,000 above the £125,000 threshold. It could mean you save huge amounts of cash, and considering that it's such a big cost, it'll hopefully ease the purse strings a bit.
Research from Yorkshire Building Society highlights just how much of an impact the changes could have. A survey found that 18% of first-time buyers see paying stamp duty as the second-biggest cost challenge associated with buying a home, second only to raising a deposit (at 51%), and this figure rises to 28% for non first-timers, 31% of whom said the deposit was the biggest issue.
"The reform of stamp duty represents a win for many home buyers," said Tanya Jackson, Yorkshire Building Society's head of corporate affairs. "This system is a dramatic improvement on what it replaces and makes almost all buyers better off.
"All upfront costs involved in purchase make it harder for first-time buyers to get on the housing ladder so they will welcome these changes, particularly those from parts of the country with higher than average house prices."
How much could you save?
Well, quite a lot, actually. Figures from the Treasury show that, if you bought a home worth £185,000 (the typical cost of a Help to Buy property), you'd now pay £1,200 in stamp duty – or 2% tax on the £60,000 portion above the £125,000 threshold. Previously, you'd have paid 1% tax on the full amount, resulting in a payment of £1,850, so you'll save £650 overall.
The savings are even more marked with higher-priced properties. The average family home of £275,000 will now garner a tax charge of £3,759, a significant drop from the £8,250 cost of the previous system, and a London property worth £510,000 will incur a tax charge of £15,500 (down from £20,400).
However, those with truly expensive properties will end up paying more as a result of the changes – a property worth £2.1m will now be subject to stamp duty of £165,750, up from £147,000 previously – but the majority of the country will benefit from the changes. In fact, the Government estimates that 98% of future homeowners will benefit – a figure backed up by the CML, which found that only 1.5% of homeowners would be negatively affected – so it's good news for pretty much everyone concerned.
For most of the UK, the savings based on the new rules could be significant. Up front costs could be cut considerably, making the process of buying or moving home far less stressful and expensive, and just think of what you could do with the extra cash! You could put more into a deposit to get a cheaper mortgage, it could cover your legal and moving fees, or you could even have some extra money to furnish your home. Alternatively, you could simply save it, and not have to worry about finding the extra money.
It's a great time to get in on the action, so if you were thinking about taking the plunge and moving, you've left it until the right time! Mortgage rates are still falling, too, so check out our best buy tables and get double the benefit.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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