Everything you need to know about stamp duty
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:
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.