The government has changed the way stamp duty works, so that from this month, you pay less tax when buying a property in the UK.
It’s not very often that we get good news from the Autumn Statement, but according to George Osborne, 98% of homebuyers in England and Wales are set to benefit from the reforms.
He claims that only people buying homes worth more than £937,000 will end up paying more as a result of the changes, so most of us should be able to give our savings accounts a boost in the New Year
What is stamp duty?
You’ve probably heard the term being bandied about, but do you actually know what it is, and more importantly, how much it could cost you?
Stamp Duty Land Tax is a fee paid to the taxman when you buy a property. The amount you pay depends on the value of the property, and the type of property i.e. residential or commercial.
What are the changes?
Until now, people have been charged between 1% and 7% on the total value of homes worth more than £125,000. This means that if your home cost £250,000, you’d pay £2,500 in stamp duty, but if it cost£250,001, you’d end up with a bill for just over £7,500.
That’s a difference of £5,000 just because your home cost an extra pound. The reason being that homes costing between £125,000 and £250,000 are charged at 1%, but that increases to 3% for properties worth £250,000 – £500,000 – and it’s applied to entire value.
Now, the government has changed the way it is charged, by applying the levy progressively, a bit like income tax.
The new bands are 0% to £125,000; 2% to £250,000; 5% to £925,000; 10% to £1.5 million, and 12% above that. So, a property worth £250,001 would now be charged 1% stamp duty on £125,000 to £250,000 and 2% on the extra £1.
How much will I save?
The reforms are set to cut £4,500 off the average home in the UK, but some will save less and other much more.
For example, if you’re buying a home worth £200,000, you would have paid £2,000, but under the new reforms, your bill is cut by £500, to £1,500. With a £600,000 property, you’ll save £4,000, reducing stamp duty to £20,000.
The biggest savers are those that would have previously been caught out by the 3% tax band, as before December 2014, the stamp duty on a £275,000 home would have been £8,250. Now, it’s just £3,750.
What about in Scotland?
If you live north of the border, your stamp duty is being replaced by Land and Buildings Transaction Tax (LBTT) from 1st April 2015. However, you too will benefit from the new rates until then.
LBTT is similar to the stamp duty reforms, as home buyers will only be charged the higher rate on the portion of the value that falls within the band, rather than the entire value of the property.
The new rates will be: 0% on homes worth up to £135,000; 2% up to £250,000; 10% up to £1 million, and 12% above that.
Impact on house prices
While the stamp duty reforms do theoretically put more cash in your pocket, sellers have responded by pushing up their prices.
Research suggests that more than 28,000 properties are sold below their actual value each year, to prevent buyers from having to pay the additional stamp duty. However, sellers that would have previously found their property in the dreaded 3% tax trap can now sell their home for what it’s really worth.
So, there you have it; the stamp duty reforms have benefits for both buyers and sellers. This isn’t the only positive tax news to come from the government this year, as in July 2014, there were also changes to ISAs, allowing you to save up to £15,000 tax-free every year.
How to pay
You have 30 days from the completion date – when the contracts are signed – to pay your bill. Don’t miss the deadline as you could end up with a fine and interest on top of the amount due.
You will your 11-character Unique Transaction Reference Number (UTRN), which will be on your submission receipt or stamp duty return.
|Written by :|
|Jemma is a news & research reporter for compareandsave.com. Having worked as a journalist on a number of personal finance websites; she now spends time researching and commenting on UK personal finance stories and investigating new ways to help our readers save money. For press enquiries, please visit our Media Centre page.|