When you purchase a house or flat in England and Wales, you have to pay an additional fee on top of the original price. This is called The Stamp Duty Land Taxes, often shortened to Stamp Duty, it is effectively a tax on the value of your new home. It can often be tricky for first-time buyers to understand fully how the tax operates, how it gets paid and most importantly how much they are liable to pay.
On the 3rd of December 2014, Stamp Duty charges were reformed and a new system came into effect. If you are planning on buying a property this has implications for you.
So, How Did the Old Stamp Duty Land Taxes System Operate?
Buyers would simply pay a fixed percentage of the purchase price of their new home. This seems straightforward in principle, but there were cases in the past where a price increase of just one pound would result in a huge increase in Stamp Duty; if that one pound caused the property price to cross over into the next tax bracket.
For example, someone buying a home for £250,000 would pay £2,500, or 1%, in Stamp Duty. But, if the properties price was £1 more an individual would pay an extra £5,000, 3% in Stamp Duty, because they would have crossed over into the next Stamp Duty tax band.
So, How Does The New Stamp Duty System Work?
Although percentage rates of Stamp Duty charges appear higher, the overall charges on homes are decidedly lower. Here in lies the confusion for many first time buyers. Simply put, when someone buys a house for £200,000 they will not be required to pay anything on the first £125,000, rather 2% of the next £75,000. This will result in the buyer having to pay an overall fee of £1500. Previously tenants would have paid 1% on the total purchase price, giving them a bill of £2,000. The new system works in the same way to income tax. The method also eradicates the previous colossal increases in Stamp Duty that could occur when a house price spilled over into a new tax bracket. The new charges will have a far more gradual impact on consumers.
According to the government, 98% of homeowners in England and Wales now pay less in Stamp Duty charges. The Chancellor has stated that only people who buy homes worth more than £937,000 will pay more in tax. Indeed, the shake up of the system is estimated to save someone buying a family home for an average price in England and Wales, £4,500.
Detailed below are the new charges:
|Property value||Old system charges (£)||New system Charges (£)||Saving|
|Up To £125,000||£0||No change||–|
How To Pay Stamp Duty Land Taxes:
You’ll need to submit a Stamp Duty Land Tax return and pay it within 30 days and this is usually done by the solicitor upon completion. If the purchase price of your new home is under £125,000, you must still submit a return even though you won’t need to pay any Stamp Duty.
Here at Waltham Estates, we explain thoroughly all of the legalities surrounding property buying to all our clients and first-time buyers. We appreciate that the legislation relating to housing and property buying can often appear complicated and off-putting. We take care to ensure that all of our clients feel assured and informed throughout their dealings with us. We pride ourselves on our customer care and dedication. If you would like any more information on how Stamp Duty may affect you, please do not hesitate to call us on 020 8509 0444 or visit us at our offices.