Stamp Duty Explained

Stamp Duty

Stamp Duty

It’s one aspect of buying a home that still causes confusion for many of our home buyers at Redstones – Stamp Duty. Therefore, we believe that understanding how it works is vital to avoid the mistake that some people make of not budgeting for Stamp Duty when purchasing a new home.

Starting in the UK in 1694, Stamp Duty is essentially tax paid to the Government for changing the documents that specify who owns a property.

Bear in mind that Stamp Duty is not paid on the first £125,000 of a property’s value. It is a tiered tax, which means that you pay a percentage on portions of the value over £125,000.

These tiers are:

  • 0% on the first £125,000 paid
  • 2% on property prices between £125,001 and £250,000
  • 5% on property prices between £250,001 and £925,000
  • 10% on property prices between £925,001 and £1,500,000
  • 12% on property prices of £1,500,001 and over

 

The amount that needs to be paid depends on the portion of the property price that falls within each band. For example, if you were buying a £260,000 property, 2% would be paid on the £125,000 to £250,000 part of the purchase price and 5% stamp duty would be paid on the remaining £250,001 to £260,000. This amounts to Stamp Duty of £3000. If that’s simply too much calculation for you, use the HMRC’s online Stamp Duty calculator, so that you understand exactly how much you will need to pay.
The next steps are to submit a Stamp Duty Land Tax (SDLT) Transaction Return and pay any Stamp Duty owed within 30 days to the HMRC. Otherwise, you could face a fine or interest on overdue payment. In reality, the entire process is something a solicitor can assist with.

Some mortgage companies allow you to add stamp duty to your mortgage. However, we would advise that it’s better to pay Stamp Duty upfront, as any amount you add will accrue interest at the same rate as the rest of your mortgage borrowing.

To sum up Stamp Duty – it’s an unavoidable cost of moving! Stamp Duty should always be considered as an additional cost if the property you intend to buy is over £125,000. However, if you are purchasing a Right to Buy property or buying multiple properties at the same time, some tax relief may be available.

Now that you’ve considered Stamp Duty, visit the Redstones website for more information on buying a home.