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The changes to stamp duty explained

January 17, 2015  |   Posted by :   |   Blog

property solicitor Thames Valley

On the 4th of December 2014 the rules on stamp duty changed, splitting the rate of tax into several different price bands to make it fairer and reduce the cost for the majority of homebuyers. Here are the main points you need to know if you’re planning on buying property in 2015:

  • You will need to pay stamp duty on any UK home costing over £125,000
  • If you buy a property for less than £937,500, you will pay less (or the same) stamp duty than in 2014
  • Stamp duty rates will be reduced for 98% of people who are eligible to pay it
  • Instead of paying tax at a single rate based on the price of a property, now you will pay separate rates of tax according to which tax bands the property price includes (similar to the way you pay income tax)
  • This means that instead of paying a fixed percentage on the entire property price, you pay nothing on the first £125,000, and a rising percentage of the remainder, depending on which tax band applies to the property price (see the table below for a breakdown of each tax band)
  • In Scotland, the new stamp duty rates will only apply until the 1st of April 2015. After this date, stamp duty will be replaced by the Land and Buildings Transaction Tax
  • The changes in stamp duty do not affect commercial properties
  • The way you pay stamp duty has not changed, and you are required to submit a stamp duty return and pay within 30 days of the completion of your sale

The new stamp duty rules work much like personal tax allowance – the first £125,000 of a property price is not eligible for stamp duty, while the remainder of the price is subject to increasing percentages of tax as seen in the table below:

 stamp duty changes

For example: if you bought a property costing £200,000, the price would be split up into two tax bands, as seen in the table above. The first £125,000 of the property price will be tax-free, while the remaining £75,000 will be eligible for 2% stamp duty = £1,500. Under the old rules you would have paid 1% on the total house price (£2,000), which means the new rates would save you £500.

More expensive properties will be subject to several different tax bands. For example: the first £125,000 of a property costing £280,000 would be tax-free, the next £125,000 taxed at 2% (£2,500), and the final £30,000 taxed at 5% (£1,500), making a total of £4,000. Under the old rates you would have paid 3% on the total price (£8,400), saving you £4,400 under the new system.

You can use the HMRC online stamp duty calculator to work out how much you will need to pay – or speak to the property and conveyancing experts at Frances Lindsay & Co who can help you budget for property purchases in the new year. For more on the changes to stamp duty, download the HM Treasury guide here

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