Everything you need to know about stamp duty

Posted 21 May 2015 by Keith Osborne

Stamp duty is one of the banes of homebuyers’ lives – an unwanted and significant expense that no-one appears to recall a purpose for. Here, Tilly Rubens looks at what this unloved charge is and what the implications of recent changes to it are for house-hunters.

What is stamp duty?

Stamp duty is a tax charged by the government when you buy a home for more than £125,000. In December 2014, the government introduced major changes to the way in which stamp duty operates.

How does it work?

Under the old system, buyers paid a single rate transfer tax on the entire property after completion. This was dependent on the value of the home so, for example, the rate was set at 3% for properties over £250,000 and 7% for properties over £2million.

Under the new system, the rates change on a sliding scale, just like income tax. There is nothing payable if the property is under £125,000 and then the following rates apply;

  • 2% is payable on the portion of any property value between £125,000 and £250,000.
  • 5% on the portion of any property value between £250,000 and £925,000.
  • 10% on the portion of any property value between £925,000 and £1.5million.
  • 12% on the portion of any property value above £1.5million.

How much will I pay?

If, for example, you are buying a property for £750,000;

  • You would pay nothing for the first £125,000;
  • Then 2% on the portion of the property value between £125,000 and £250,000 which is £125,000 x 2% = £2,500;
  • Then pay 5% on the portion of the property value between £250,000 and £750,000 which is £500,000 x 5% = £25,000.

Total = £2,500 + £25,000 = £27,500.

The table below will provide a rough-and-ready guide:

Property Price Tax Payable
£125,000 Nil
£250,000 £2,500
£500,000 £15,000
£750,000 £27,500
£1,000,000 £43,750
£1,500,000 £93,750
£2,000,000 £153,750

 

What happens if I exchanged before 4 December 2014?

Homebuyers who exchanged contracts before 4 December 2014 but have not yet competed can choose whether to use the old or the new rules. However legal advice should be taken if this applies to you.

Search  



Click here to see your activities