The tax you pay when you buy a property in England, Wales or Northern Ireland is officially known as Stamp Duty Land Tax (SDLT), or more commonly known as stamp duty.
Stamp duty is a tax on property transactions carried out between individuals, corporations or other groups of people, such as shared ownership. It differs between freehold and leasehold transactions on residential properties, and is different again on commercial property transactions. However, in this article, we will concentrate on the stamp duty paid for those properties bought for residing in or bought as a buy-to-let, because there is a difference between the two. So how is the tax applied to the price of a property? Firstly, we will concentrate on those who buy a home to live in.
A key feature of the Autumn Budget 2017 was the issue of stamp duty for first-time buyers. Chancellor Philip Hammond announced that stamp duty for first-time buyers would be abolished for all property purchases up to £300,000. For first-time buyers purchasing property in more expensive areas like London, no stamp duty is payable on the first £300,000 of the purchase price of properties up to £500,000. This measure is effective immediately.
The SDLT is a progressive tax, and the amount of tax increases with the increase in price of the property you will be buying.
There is no charge on the first £125,000 of a property. The chances of finding a house for that price inside or close to the M25 circle are possibly nil, and certainly not relevant for central London properties.
First-time buyers aside, the tax is applied on the next £125,000 at 2% up to £250,000. It then increases to 5% on the next £675,000 up to £925,000. It then takes a hefty hike to 10% on the £575,000, which will take the price to £1,500,000. Any amount above £1,500,000 is taxed at 12%.
In an attempt to clarify how much stamp duty you will pay on the house you buy, we have given some examples below. We have started at the modest price of £450,000 and concluded at £1,600,000:
£450,000 you will pay £12,500.
£800,000 you will pay £30,000.
£1,400,000 you will pay £83750.
£1,600,000 you will pay £105,750.
Those buying a home in Knightsbridge, Mayfair, and other parts of central London can usually expect to pay even more for their properties. For example, a buyer purchasing a central London property priced at £5 million will pay £513,750 in stamp duty.
These examples are for people who are buying property as their main residence, if you are considering buying as an investment, the amount of stamp duty increases dramatically.
From April 2016, an extra stamp duty surcharge became applicable on the purchase of additional properties and second homes. A further 3% on the existing stamp duty has been added.
At first glance, 3% does not seem a huge amount, but the examples below illustrate the increase in the duty you will pay on buying a second property:
£450,000 you will pay £26,000.
£800,000 you will pay £54,000.
£1,400,000 you will pay £125,750.
£1,600,000 you will pay £153,750.
Compared to the tax levied on the one home only property, you will see quite a substantial increase.
The above prices and examples are based on freehold properties. The stamp duty on leasehold and commercial property differs from freehold sales.
We have based our prices on information on the government's SDLT calculator that can be found on here
. However, we can assist should you have any questions regarding stamp duty on freehold, leasehold, or commercial property transactions.