redstones houses

Stamp Duty : What Will You Really Save?

This weeks Autumn Statement by Chancellor George Osborne revealed significant changes to the amount of Stamp Duty which it is claimed will reduce the amount payable for 98% for all homebuyers.

Here we summarise what it all means.

What is stamp duty?

Stamp duty, or Stamp Duty Land Tax (SDLT) is a payment levied on all purchases of property, including flats, houses, land and other buildings over a certain price.

Before

Under the previous system home buyers would pay stamp duty calculated on a fixed percentage as detailed below:-

Property price up to £125,000  tax free

Price between £125,000-£250,000  stamp duty of 1%

Price between £250,000-£500,000 stamp duty of 3%

Price between £500,000 £1m  stamp duty of 4%

Price between £1m to £2m  stamp duty of 5%

A stamp duty of 7% applied to all properties over £2m.

Under this system, if buyers paid just £1 over £250,000 they were required to pay stamp duty of 3% on the whole purchase price, a system which was often criticised.

After

With the changes to stamp duty announced in the Autumn Statement, home buyers now pay a fixed percentage of stamp duty on each portion of the property price.

The applicable charges for residential properties are now as follows

The first £125,000 of the property price,  tax free

Portion of price from £125,000-250,000  stamp duty of 2%.

From £250,000-£925,000  5%

From £925,000-£1.5m  10%

Portion of price over £1.5m  taxed at 12%.

Under this system buyers are no longer charged a higher rate on the total property price if they pay £250,001, for example.

What does it mean?

Here we haveve provided some illustrations of what these changes will mean in practice.

Property price £125,00 – no change (no stamp duty applicable)

Property price £185,000  previous charge £1,850; new charge £1,200  Total Saving £650

Property price £275,000  previous charge £8,250; new charge £3,750  Total Saving £4,500

Property price £510,000  previous charge £20,400; new charge £15,000  Total Saving £4,900

Property price £2.1m  previous charge £147,500; new charge £165,750– Total Loss £18,750

A stamp duty calculator is available on the government website.

https://www.gov.uk/stamp-duty-land-tax-rates

Early predictions suggest that house prices may rise in some areas where the cost of stamp duty will be lower but fall in regions where stamp duty will increase, typically in areas where house prices are highest.

What will this mean for the housing market?

As an overall guideline the Treasury stated that people purchasing a property for £275,000 (the price of an average family home) would save £4,500 in stamp duty. A purchase of £2.1m on the other hand will see stamp duty rise by £18,750.

While the period leading up to Christmas sees a traditional slowdown in the housing market, it is anticipated that 2015 will see an increase in prospective buyers.

When did these changes take effect?

The changes took place with effect from 3rd December.   For buyers who have exchanged contracts on a property but not yet completed, they will be allowed to select which rules to use.

The new rates of stamp duty will apply across the UK but will be replaced by the Land and Buildings Transaction Tax in Scotland from next April.

Thinking of selling your house? At Redstones we work hard to ensure a fast sale at the optimum price.  We also offer an online auction for property owners who need to sell quickly. Contact us today to discuss your options.

For more advice and guidance, see our previous blogs:-

Selling Your House? Get Your Timing Right

House Prices Are At An All Time High – Is It Time To Sell?