PUTTING YOUR STAMP ON A NEW HOME
With Alex Neill of Which?
Stamp duty is, for most people, a tax you pay on buying a property - either outright or with a mortgage. But it can apply to other assets - nowadays largely shares on the stock market. The phrase comes from the official government stamp that went onto documents transferring an item of value – property, some investments, and until the 1960s, on every cheque written.
To avoid confusion, the tax you pay when you buy a home or other property has been officially called Stamp Duty Land Tax since 2003, unless you are in Scotland it is called Land and Buildings Transaction Tax.
But despite the name change, it’s still generally called stamp duty. It can add a substantial slice to the purchase price – even more for a second home or one to let out.
There are no legal ways of reducing or avoiding it – it is added onto the price that you, or your lender, hands over during the transfer process, generally by a solicitor or legal conveyancing specialist although you can do it yourself.
You can add it onto your loan. But this can be a bad idea - the higher the loan to the value of the property, the higher the interest rate. You will also pay it off over 25 years, incurring extra interest changes.
Until 2014, stamp duty was a “slab tax” – the rate on your purchase price applied to the whole amount. This led to the duty on a £ 250,001 property being three times that on a £ 249,999 home. Some cheated with cash or paying silly amounts for furniture to get the value below the threshold.
Now it’s like income tax – the first slice ( up to £ 125,000) is zero, the next £ 125,001 to £ 250,000) is 2%, and the amount from £ 250,001 to £ 925,000 is 5%.
There are two higher rates for the priciest properties. In Scotland, the rates are similar to the rest of the UK on homes up to £ 325,000 but more expensive after that.
The change reduced stamp duty for most – a £ 300,000 home went down from £ 9,000 to £ 5,000.
There’s a stamp duty calculator on the Which? Mortgage Advisers website. With up to five tax levels, most of us could do with a little help!