Posted on Mar 6, 2019

Understanding Stamp Duty

If you are purchasing a house that costs over £125,000, you will have to pay what’s called a ‘Stamp Duty Land Tax’. This tax is payable for both freehold and leasehold properties, regardless of whether you are buying the property with a mortgage or outright.

As the stamp duty tax is calculated based on the price of the property, each rate falls within a particular band. For example, the minimum stamp duty rate for residential property prices of £125,001 to £250,000 is currently 2 per cent. This rate goes up to 5 per cent for £250,001 to £925,000 band. Properties that are purchased for over £1.5 million, a tax rate of 12 per cent will apply.

The recent stamp duty rate changes that came out at the end of December 2015 were finally introduced in April 2016, so from 1st April 2016, buying an additional property including buy-to-let will have a surcharge of 3 per cent on top of each band including the first banding of the property purchase price of £0 to £125,000. This newly increased rate however, doesn’t apply to mobile home and houseboat purchases.

Understanding Stamp DutyWho will be affected by the new stamp duty tax?
Anyone who owns a second property that’s not their main residence will be caught up in these changes. This means if you are a landlord and about to buy additional properties for investment, or you are purchasing a second home, you will need to pay the extra stamp duty.

If you are buying a property to live in but there is a delay in selling your main residence, you will still need to pay the higher stamp duty rate as you will own two properties. However, you are given 3 years to sell your existing home and once it is sold, you will be able to claim a refund. There are also other situations in which stamp duty is either not payable or can be reduced.

If the price of the property you are buying is only just within the higher band rate, you can ask the seller to slightly lower the asking price. In property transfer, deed transfer, or divorce cases, there is no stamp duty payable. This also applies if you are gifting your home to someone else.

There are numerous factors that determine whether a property is classed as a main residence or not. As a home owner, you will need to present evidence to HMRC to confirm the following: how much you and your family spend time in the property, which school your children go to, the address where you and your family are registered to vote, and finally, where you work.

If you are about to buy a property and need further advice and guidance on stamp duty tax, simply speak with one of our mortgage advisers today!

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