Stamp Duty can be confusing at the best of times, so it’s important to get to grips with it as soon as possible. Read on to find out more…
There are plenty of things you need to take into consideration when you are buying a property: how many bedrooms does it have; what’s the neighbourhood like; where’s the nearest takeaway? What might not immediately spring to mind, however, is Stamp Duty Land Tax.
The details surrounding Stamp Duty can be hard to get your head around, at times. They’ve been made even more complicated as a result of the changes in legislation during the COVID-19 pandemic. It’s, therefore, vital that you understand exactly where you stand and what changes are going to happen in the future.
The key to buying a property is to make sure you are fully prepared and have all the information to hand. This way, when you consult your conveyancing law firm in Louth, Leicester, Loughborough, Luton, or wherever you reside, you won’t be blindsided. So, to discover more about what to expect from Stamp Duty, read on…
What is Stamp Duty?
Stamp Duty is a tax you might have to pay when you purchase a property or piece of land in England or Northern Ireland. The tax is paid when you:
- Buy a freehold property
- Buy a new or existing leasehold
- Buy a property through the government’s shared ownership scheme
- Are transferred a property in exchange for payment, e.g. taking on a mortgage
Of course, it’s not that simple. To be required to pay Stamp Duty, there a number of thresholds that need to be met first. This means you’ll need to understand your position and what’s expected of you.
What are the Current Stamp Duty Thresholds?
In response to the economic impact of the COVID-19 pandemic, Chancellor Rishi Sunak announced that there would be a number of changes to Stamp Duty in England and Northern Ireland.
This ‘Stamp duty holiday’ means that, if you’re buying a property up until 31 March 2020, you will not be required to pay Stamp Duty on properties costing less than £500,000. This threshold applies for both current homeowners and first-time buyers.
The current threshold for non-residential land and properties is £150,000.
How is Stamp Duty Calculated?
If you do have to pay Stamp Duty, the amount you pay is based on the value of the property over £500,000. Currently, the Stamp Duty rates are as follows:
- Up to £500,000 – 0 percent
- The next £425,000 (the portion from £500,001 to £925,000) – 5 percent
- The next £575,000 (the portion from £925,001 to £1.5 million) – 10 percent
- The remaining amount (the portion above £1.5 million)
So, as an example, if you purchase a property worth £600,000, you’ll be taxed 5 percent on the additional £100,000, meaning you’ll pay £5000 in Stamp Duty.
To make things a little easier, you can use the Stamp Duty Land Tax calculator to work out exactly how much tax you’ll have to pay. Helpful, right?
What About Stamp Duty on Second Homes?
To make things even more confusing, there are different rules when it comes to Stamp Duty on second homes. For any second home purchase, you’ll have to pay an additional 3 percent on top of the current rates for all of the bands listed above. This rate applies to any property purchased for £40,000 or more.
So, if you’ve been eyeing up that dream holiday home in Cornwall, it’s worth keeping in mind.
How Do I Pay Stamp Duty?
Usually, you won’t have to worry about paying Stamp Duty yourself – phew! Your solicitor or property conveyancer will file your return and pay the tax on your behalf on the day of completion, adding the amount to their fees.
For peace of mind, it’s always worth double checking that this is indeed the case. If it isn’t, you can always file a return and pay the tax yourself. Be warned, you could be charged if you don’t file your return within 14 days of completion. The lesson here? Get on top of it quicky.
What Changes are Being Made in 2021?
To throw yet another spanner in the works, further changes are on the horizon. The ‘Stamp Duty holiday’ that has been put in place for 2020 will be coming to an end as life eventually returns to normal.
Life beyond the pandemic will no doubt be welcome, but it does mean that the changes to Stamp Duty will be less favourable. From 1 April 2021, Stamp Duty thresholds will return to the previous rates that were in place before 8 July 2020. This means Stamp Duty will apply on residential properties worth £125,000.
However, first-time buyers need not fret. If you or someone else you are buying with is a first-time buyer, you still won’t have to pay any Stamp Duty. This applies so long as the purchase price is below the magic number of £500,000.
What if you Live in Scotland or Wales?
Readers living in Scotland or Wales – good news and bad news. The good news is that you don’t have to pay Stamp Duty Land Tax. The bad news is that there are alternative taxes that need to be paid.
In Scotland, you’ll have to pay what’s known as Land and Buildings Transaction Tax. This tax replaced Stamp Duty in Scotland in 2015 and, though it operates in a similar way, has different thresholds to keep in mind.
As of 9th July 2020, the starting threshold for residential property transactions was raised to £250,000, meaning you won’t pay any tax for transactions below this figure. You will have to pay a rate of:
- 5 percent if the purchase price is between £250,001 to £325,000;
- 10 percent for transactions between £325,001 to £750,000;
- And 15 percent over £750,000.
As with Stamp Duty, these thresholds are due to change from 1 April 2021. For further info, use the Scottish government guide.
As for Wales, the equivalent to Stamp Duty is known as Land Transaction Tax. Again, 2020 saw a change in legislation, which meant that new bands have temporarily been introduced:
- There is no tax to be paid on properties up to and including £250,000
- 5 percent tax to be paid on the portion between £250,001 and £400,000
- 7.5 percent between £400,001 and £750,000,
- 10 percent between £750,001 and £1.5 million
- 12 percent over £1.5 million.
Again, these thresholds are due to change on 1 April 2021. Visit the Welsh government website for detailed advice.