What You Need To Know About Stamp Duty - Advice For Property Buyers

What exactly is stamp duty and how does it affect me?

For house-hunters looking to buy property priced at £125k or above, there is one important added cost you will need to take into account - Stamp Duty Land Tax. This is basically a tax that buyers have to pay to the government when they purchase a property for £125k or more, with the tax payable on the whole of the purchase price, not just the amount above the threshold. The tax is usually payable within 30 days of the property completing. How much tax you have to pay depends on the purchase price of the house:

Stamp Duty Land Tax (SDLT) Rates for Residential Property:

Up to £125,000 - no tax

Over £125,000-£250000 - 1%

Over £250,000-£500,000 - 3%

Over £500,000-£1 million - 4%

Over £1 million-£2 million - 5%

Over £2 million - 7%

One penny more or less than the boundary could result in a difference of £100,000's in stamp duty. So, for example, if you buy a house for £250,000.01 you will need to pay 3% SDLT i.e. £7,500. If the purchase price is £249,999.99, it will fall into the 1% bracket, with stamp duty at £2,500 - a difference of £5,000!

You'll find that houses put on the market on or just above the SDLT thresholds usually struggle to sell for their marketed figure for this very reason - understandably buyers are reluctant to stump up the higher level of tax on top of purchasing the property, and so tend to make offers at just under the threshold.

The thresholds for paying stamp duty were set a number of years ago when house prices were a lot lower. Over time, the average price of property has risen but the thresholds have remained the same, meaning more people are having to pay at least 1% stamp duty when they purchase a property. Last year a massive £9.2bn was raised from Stamp Duty Land Tax (source Property Industry Eye). There have been many calls to raise the lowest level at which stamp duty comes into effect, or exempt first time buyers from having to pay, but it look like that is some way off.

Can I get out of paying SDLT?

There are very few cases where stamp duty on residential property won't be payable. Even if you swap properties with someone and no money changes hands, the tax is still due on the market value of the property you're buying. If, however, you are transferring your share of a property to your partner, as opposed to selling it to a third party (in such cases as divorce or separation), then usually no tax is due from the 'buyer' (source - Which?).

Stamp Duty does not apply to removable fixtures and fittings - such as carpets and freestanding furniture - so some buyers negotiate the buying of these separately from the purchase of the house in order to reduce the amount of tax they need to pay. For example, a purchase price of £120,000, with £6,000 worth of furniture would therefore not incur any SDLT. Some more wily buyers have been known to exaggerate the price of these items to get around having to pay more stamp duty - something which HMRC are aware of!

There are various tax avoidance schemes out there, but our advice is it's best to stay away from these, not least because several of them are legally dubious.

How do I pay SDLT?

It's usually the solicitor handling your purchase who will handle the payment of SDLT - make sure it's accounted for in the paperwork. If not, you'll find details of the various ways of how to pay on the HMRC website.

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Published on 15 August 2014

Source Dominic Woodward

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