Stamp duty is one of the least-enjoyed aspects of buying a new home, with it often requiring buyers to stump up thousands of additional pounds on top of the purchase price and additional mortgage costs. But how much could you have to pay? Let's take a look.
Prior to December 2014, stamp duty bands had a cliff edge arrangement, whereby if your purchase price edged into the next tier, you'd pay the higher tax rate on the full value of the property. Happily, it's now become far more proportional, meaning you only have to pay the higher rate on the amount above the stamp duty threshold.
The stamp duty rates are currently as follows:
|Purchase price of property||Rate of SDLT (stamp duty land tax)|
|£0 - £125,000||0%|
|£125,001 - £250,000||2%|
|£250,001 - £925,000||5%|
|£925,001 - £1.5m||10%|
Let's say you bought a property worth £251,000. You'd only pay 5% stamp duty fees on the £1,000 above the £250,000 limit (you'd pay 2% tax on the amount between £125,001 and £250,000 and nothing on the rest), which means you could save a huge amount of cash compared with the previous arrangement. Granted, it's still a significant cost, but it'll at least be cheaper than paying 5% on the full £251,000.
However, this is assuming you're not a second home-buyer or landlord. If you are, you'll have to pay an additional 3% surcharge on top of the above rates, as the Government brought in new rules last April in an attempt to free up the market for first-time buyers.
According to Nationwide, the average price of a property in the UK currently stands at £207,699. If you bought such a property, you'd pay no tax on the first £125,000, and 2% tax on the remaining £82,699, giving a tax bill of £1,653.98.
However, if you were buying it for an investment, a second home or as part of your buy-to-let portfolio, the calculations would be slightly different. Thanks to the surcharge you'd pay 3% on the first £125,000 (£3,750) and 5% tax on the remaining £82,699 (£4,134.95), giving a total stamp duty bill of £7,884.95. It's little wonder that landlords are turning away from the market and looking to limited company arrangements
instead! (You can find out how to incorporate and set up a buy-to-let limited company here.)
It can't be denied that stamp duty can be a significant cost for all buyers, so you'll need to make sure you're prepared for it when you're looking to buy your first home or trade up to a bigger one. You'll need to get your savings in tip top condition – find the best savings rates to get started – and make sure to keep an eye on typical house prices in your area so you know the kind of stamp duty bill you could be dealing with.
You'll want to get the best possible mortgage deal, too, as this can be a great way to help keep your budget in check. You may even be able to find a mortgage that comes with incentives such as cashback or help towards legal fees, both of which can help minimise upfront costs, and that way, you hopefully won't find stamp duty costs too prohibitive.
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