Stamp Duty, What Are The New Rates? And Will You Have to Pay Them?

Stamp Duty is something many are quick to complain about, most begrudge paying but very few actually understand it.

It is with this in mind that Jones Robinson put together our guide to stamp duty and, for those who want to calculate just how much it will cost, we will soon be introducing a Stamp Duty Calculator function to our website!

What is Stamp Duty?

mortgage-1239420_1920Stamp Duty refers to Stamp Duty Land Tax (SDLT) which is a form of tax paid when a piece of land or property is purchased, if it’s over a certain threshold. In the UK, for Stamp Duty to be owed on a residential property, the purchase price must be over £125,000, for a non-residential property or piece of land, the threshold is currently set at £150,000.

How is Tax Charged?

Prior to the reform in December 2014, stamp duty was calculated using a slab system. The slab system meant tax was paid on the full value of the house. However, due to wide spread dissatisfaction with the system, the government decided in December 2014 to introduce a progressive system.

Under the old slab system, property prices were broken down into percentage brackets and percentage was paid on the full value of the property or piece of land in accordance with that bracket.

Property Price Band Stamp Duty Tax (Pre Dec 2014)
Up to £125,000 0% on full price of property
Over £125,000 & under £250,000 1% on full price of property
Over £250,000 & under £500,000 3% on full price of property
Over £500,000 & under £1,000,000 4% on full price of property
Over £1,000,000 & under £2,000,000 5% on full price of property
Over £2,000,000 7% on full price of property

Under the new progressive stamp duty system, tax is paid based on each bracket rather than the full amount.

Property Price Band Stamp Duty Tax (Post Dec 2014)
First  £125,000 of property price 0%
Next £125,000 – £250,000 of property price 2%
Next £250,000 – £925,000 of property price 5%
Next £925,000 & under £2,000,000 of property price 10%
Over £2,000,000 of property price 12%

This means that, if you are purchasing a residential property to the value of £300,000, under the old system Stamp Duty would be charged as 3% of the total value of the property equalling £9000.

Under the progressive stamp duty system, stamp duty paid on a £300,000 would be broken down so 0% is paid on the first £125,000, 2% on the second £150,000 and 3% on the final £50,000 meaning the total stamp duty would equal £4000 – that’s a £5000 saving under the new progressive system.

What is the Stamp Duty Surcharge?

The changes to Stamp Duty that occurred in April 2016 referred to buy to let and second homes. The change means that those who already own a primary residence and purchase another property will pay an extra 3% on the current tax bands. The 3% surcharge works like the old slab system meaning it’s applied to the entire purchase price of the property.

Property Price Band Stamp Duty Tax (Post Dec 2014) Surcharge on Second Properties
First  £125,000 of property price 0% 3%
Next £125,000 – £250,000 of property price 2% 5%
Next £250,000 – £925,000 of property price 5% 8%
Next £925,000 & under £2,000,000 of property price 10% 13%
Over £2,000,000 of property price 12% 15%

Who will the Surcharge Effect? 

If you already own a residential property in the UK, you will have to pay the surcharged stamp duty should you purchase an additional residential property, whether it’s a holiday home or a buy to let property. It also affects those who own a share in another property, if that share is worth more than £40,000.

abode-987096_1920Does Stamp Duty Consider Properties Owned Outside of the UK?

The Stamp Duty tax is just calculated based on ownership of UK properties, it also takes into account properties owned around the globe. For example, if you own 40% of a £400,000 villa in Barbados and want to purchase your first home in the UK, you would have to pay stamp duty.

What if the Second Home I am Buying will Become my Main Residence?

If the second home replaces your main residence then, even if you own other residences such as buy to let properties, you will not be liable for the surcharge. However, it’s important to be clear on the Government’s meaning of replace.

For stamp duty to not be applied on the newly purchased home, the previous main residence must be disposed of and replaced with the new purchase. This means that the main residence must be either sold or gifted and deeds transferred out of your name.

For example; Mrs Smith owns and lives in home A and also has a buy to let mortgage on homes B and C. She wants to move into a new area and so sells the home A and purchases home D. Because the home D will become her main residence she will not be liable to pay the surcharge.

What if I Need to Buy Another Home Before my Previous Residence has been Sold?

If you’ve fallen in love with a property but your old one just won’t sell, you will have to pay the stamp duty surcharge. However, if within 36 months of completion on the second property, the original property is sold, stamp duty surcharge will be refunded in full.

The refunds to stamp duty do not only apply when you move directly from one home and into another. In fact they can be claimed if any property deemed to be your main residence is sold within three years of stamp duty surcharge being paid.

If after reading this guide you are still unsure about how stamp duty is calculated and how much you will be charged, please comment below or contact our team of property experts.

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