So what exactly IS stamp duty? How has it changed?
Chancellor Rishi Sunak announced in his recent mini Budget that the rates of stamp duty are to be reduced for the rest of this financial year. This will enable people to save money, and is intended to be an incentive to encourage people to move home and boost the property market.
But what exactly is stamp duty, when and how do we have to pay it and what difference will these recent reductions make?
Let’s take a look.
What is stamp duty?
It is confusing because the historic name is pretty meaningless today. For example, there is no stamp involved; it’s basically a tax. It is referred to today as SDLT – Stamp Duty Land Tax.
Stamp duty was introduced in the UK in the late 17th century as a means of raising money for war against France. It was then a tax charged on various kinds of legal documents. Those documents were stamped to show that the money had been paid: hence the name stamp duty.
Stamp duty proved to be a successful way of raising money and so was extended to a wide variety of other goods including newspapers, lottery tickets, insurance policies, advertisements, pamphlets, playing cards, dice, medicines, hats and gloves. Buyers had to pay a fixed stamp duty fee when purchasing these goods.
In the early 19th century, stamp duty was first applied to sales of property and land. The amount of stamp duty to be paid was proportional to the value of the property or land.
Over the years there have been many changes to how stamp duty is applied, for example the starting value of properties subject to stamp duty and the amount of stamp duty charged. We will look at the most recent changes below.
When and how do you pay stamp duty?
Stamp duty is paid when you complete a property purchase. HMRC need to be notified of the purchase within 14 days of completion, and the money paid to them at the same time. Penalties may apply if you do not do this.
Normally all this is dealt with online by the solicitor handling your property purchase. But if for any reason you prefer to do it yourself then you would need to submit a paper SDLT return and the amount due to HMRC within the required 14 days.
How much is stamp duty now?
Before Rishi Sunak’s mini budget, existing homeowners had to pay stamp duty on any property over £125,000 and first time buyers on properties over £300,000. However, now stamp duty is only applied to any home worth more than £500,000.
These new rates apply to both first time buyers and existing homeowners and will continue until 31 March 2021.
If you will have more than one property after your purchase then you will pay a 3% higher rate of stamp duty.
A brief overview of the new charges is as follows:
|Property value||Stamp duty (1 property)||Stamp duty (>1 property)|
|Up to £500,000||0%||3%|
|£500,001 to £925,000||5%||8%|
|£925,001 to £1,500,000||10%||13%|
Although the higher charges only affect a very few people, it is important to understand that different charges apply to different portions of the cost. So for example for a single home costing £1,000,000 you would pay 5% stamp duty on the £500,001 to £925,000 component of the cost, and 10% stamp duty just on the remaining £75,000.
You can see specific charges by using the Gov UK stamp duty calculator here.
How does this affect me?
If you are moving home then stamp duty can catch you out. It is often one of the costs of buying a new home that you forget about. But the new changes are expected to cut the average stamp duty bill by £4,500 – and even enable around 90% of homebuyers to pay no stamp duty at all. So whatever the value of your new property, you will definitely save money.
The other good news is that some mortgage companies may now reduce the amount of deposit that they had recently been demanding. Nationwide are already doing this and others are likely to follow suit. But if you want to move and are worried about being able to raise a deposit in time then do take a look at our recent article How to get on the property ladder without a huge deposit for some alternative options to explore.
So if you have been seriously considering buying a new home then now could be a good time to do it. Good luck! Remember to check back here soon for more lifestyle and financial tips from Loans 2 Go.