Stamp Duty Reforms – How will the changes affect you?

What is Stamp Duty?

Most people may not know what stamp duty is, as the most common time you may have to pay stamp duty is when you buy a property.

You pay stamp duty land tax (SDLT), but it’s commonly known as stamp duty. This is a tax charged by the Government on nearly all property transactions.

The amount of stamp duty you will have to pay depends on the value of the property. From midnight on Thursday 4^th December 2014 the way in which Stamp Duty is charged on property transactions was changed.

Under the old system, the amount charged jumped at each threshold level. This meant that you would have paid the following amounts:-

1. 0% between 0 – £125,00;
2. 1% paid on properties costing between £125,000.01 and £250,000;
3. 3% between £250,000.01 and £500,000 and
4. 4% for more than £500,000.01.

This created a sudden leap in the tax charged at each of the thresholds, even if you were only paying a penny more.

This could have been a significant extra cost for a purchaser. For example, if you had purchased a home for £251,000.00 you would have paid 3% duty on the whole purchase price being £7,530.00, whereas if you purchased for £1,000.00 less you would only pay 1% on the whole purchase price being £2,500.00.

It could be said that this disproportionate taxation may have meant that a lot of sellers would have priced their properties just under the tax brackets to encourage more interest in their property. Some may have even lost a sale if a purchaser could not afford the extra duty.

Under the new system the way stamp duty is calculated will be at a graduated rate, so this will work in a similar way to income tax.

The new brackets are;

1. 0% up to £125,000
2. 2% for anything between £125,000.01 and £250,000
3. 5% for anything between £250,000.01 and £925,000
4. 10% for anything between £925,000.01 and £1.5million
5. 12% for anything above £1.5million

So, you will no longer pay stamp duty on the whole purchase price, instead you will pay duty on the part of the purchase price that falls into each of the above brackets.

Example 1; If you are purchasing for £130,000.00 you would pay 2% stamp duty on £5,000.00. This would mean that you pay duty of £100.00.

Example 2; If you were purchasing for £275,000.00 you will pay 2% of the value between £125,000 – £250,000 (£125,000.00 ) and then 5% of the proportion of purchase price which exceeds £250,000 (£25,000.00). This would mean that you pay duty of £3750.00.

Under the new system anyone buying a home costing under £937,000 should pay less or the same as before.

The big win though is for those previously caught in the 3% tax bracket; someone previously hit with an £8,250 bill on a £275,000 home will now pay £3,750.

Meanwhile, those buying a £600,000 home will now pay £20,000 in tax, compared to £24,000 before.

The considerable hike is for those who own property worth more than £2m who will pay £50,000 more under the new policy.

These changes will most certainly help first time buyers. At Browell Smith & Co we see a large proportion of purchases at around the £150,000.00 bracket. This would now be a saving of £1,000.00 for purchasers.

If you would like to carry out your own calculation of the stamp duty payable then please refer to;

http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm

If you have any queries about Stamp Duty or any Conveyancing queries then please do not hesitate to contact Toni Spencer on 0191 250 3235

– See more at: https://www.browells.co.uk/index.php/news/blog/292-stamp-duty-reforms-how-will-the-changes-affect-you#sthash.H1UnTuYO.dpuf