In this article, I am going to be looking at stamp duty: what it is exactly, and whether it applies to everyone in all home-buying situations.
What is it exactly?
And does it apply to everyone in all home-buying situations?
It is easy to assume that stamp duty is just yet another fee that has to be paid when you buy a house; but as I shall explain in a bit, that isn’t always the case.
Plus if it is something you have to pay, it won’t necessarily be the same amount as your friends up the road paid when they bought a house.
Don’t be…let me explain..
What Is Stamp Duty?
Basically it is a lump sum tax that is paid on a residential property or piece of land costing more than £125,000.
If you are purchasing a second home or investment property (Buy to Let) it is a tax that has to be paid on properties that are worth more than £40,000.
Stamp duty has to be paid whether you are buying a freehold or leasehold property, and whether you are getting a mortgage or are able to buy it outright.
Sounds simple enough, right?
How Much Does Stamp Duty Cost?
Stamp duty falls into several rate bands, and the amount you pay is calculated on where the price falls within each band.
Up to and including a purchase price of £125.00 = you pay 0%
Properties costing anywhere between £125,001 to £250,000 = you pay 2%
Properties costing from £250,001 to £925,000 = 5%
£925,001 to £1.5m = 10%
Over £1.5m = 12%
Let me give you an example:
Imagine you are buying a house that costs £275,000.
You would pay nothing on the first £125,000 that the property is worth.
The next £125,000 would cost you 2%, so £2,500.
The remaining £25,000 would be charged at 5%, so £1,250.
So in total you would pay £3,750 in stamp duty.
Does Everyone Have To Pay Stamp Duty?
Mostly, yes, but there is stamp duty relief for first time buyers.
A first time buyer is someone purchasing their only or main residence and hasn’t previously owned a freehold or leasehold property either in the UK or abroad.
Sounds like you?
In that case you won’t pay any stamp duty on properties worth up to £300,000 – which will save you up to £5,000.
‘Great!’, I hear you cry, ‘But I’m a first time buyer with cash to burn and want to spend more than that.’
Ok, moneybags, I’ll get to that next.
If you are going to buy a house that costs up to £500,000 you will still pay no stamp duty on the first £300,000, but you will have to pay stamp duty on the remaining £200,000.
And if the property you want to buy is over £500,000?
Well then you don’t qualify for first time buyers relief and have to pay the standard rates of stamp duty.
Also, quite frankly, you’re just showing off.
Does Stamp Duty Relief For First Time Buyers Apply To Singles AND Couples?
If you are married and buying a house together you both need to be first time buyers to be eligible.
Unmarried couples can also get the reduction if the person named on the mortgage is a first-time buyer.
But…(there’s always a but)..
1. The maximum saving is £5,000 regardless of how many names are on the mortgage deed
2. If the mortgage is only in one person’s name then it is only based on their income, which will affect how much you can borrow
3. You need to think about what would happen if you split up.
If both your names are on the mortgage you would both have a claim in that property.
If it’s only in one name then it could be that either you or your partner could end up with nothing and no legal claim
How Do I Pay Stamp Duty?
From the date of your house completion you have 14 days to pay the stamp duty tax, and normally your solicitor will deal with it for you.
If you have bought a house that is less than £125,000 a tax return is still submitted even though you won’t have to pay any stamp duty.
When Is Stamp Reduced Or Not Payable At All?
1. If you buy a property that costs less than £125,000
2. If you are transferring a portion of your homes value to a spouse or partner during divorce or separation
3. If you are transferring the deeds of your home to someone else, for example, as a gift or in your will.
Stamp Duty And Buying A Second Home
If you are buying a second home or a buy-to-let property that costs £40,000 or more, you will have to pay an extra 3% in stamp duty on top of the current rate for each band.
It doesn’t include houseboats, caravans or mobile homes.
If you were to buy a new main residence (so, a property you are going to live in, not rent out to someone else), and for some reason, the sale of your old house is put on hold or delayed, you would have to pay the higher stamp duty rates because you’ll now own two properties.
If you have any additional questions about stamp duty or becoming a first time buyer, give the peeps at More Than Money a call!
We offer advice on all aspects of homebuying – from getting your foot on the property ladder, to climbing all the way to the top!
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