Almas Uddin
Founder and Mortgage Advisor
17 Nov 2019
A question a mortgage broker gets asked frequently is ‘how much stamp duty will be charged if I buy this property?’.
Stamp duty has become quite a big problem for the property buyer. With costs including solicitors, mortgage, broker and estate agent fees, the additional stamp duty charged can often be a cost that is forgotten. It is also a lot more than clients expect it to be.
Stamp duty is a tax that is charged to property buyers in a lump sum form. It has to be paid if the property value is over a certain amount regardless of the buyer's income. The amount of stamp duty changes from property type. As you will pay more for a second property than you would if you were a first time buyer.
To answer the question of how much stamp duty you would pay for as a first time buyer the rates are as follows:
Current stamp duty rates are:
These rates of stamp duty came into effect in 2014 and are actually designed to be fairer, than that of the previous stamp duty which was as stated:
Let's assume you're buying a property for £300,000.
Old system Stamp Duty:
You would have paid 1% on a property between £125,000 and £250,000, between £250,000 and £500,000 you'd pay 3%. So because the purchase price is over £250,000, you'd have paid 3% on the entire purchase price, despite only being £50,000 above the threshold. Thus, you'd have paid £9,000 in stamp duty.
New system Stamp Duty:
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You pay nothing below £125,000, which is £0
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You pay 2% on between £125,000 and £250,000, which is £2,500
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You pay 5% on the value of the property above £250,000, which is £2,500
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So in total this means you'll pay £5,000 (£0+£2,500+£2,500).
Understanding Stamp Duty:
Case Study:
Property Value £300,000
The first £125,000 will not incur tax. Its is stamp duty free. You will not pay stamp duty on that amount.
This means that if you buy a property under £125,000 you will not pay any stamp duty on that property. This however is very unlikely for a property in London.
The portion of your property that comes into the bracket between the values of £125,000 and £250,000 will charge a stamp duty of 2%. In the case of this study where the property is valued at £300,000 the applicant will be in the tax bracket of £125-300,000 and you will incur a charge of £2500.
The amount of the property that is valued over £250,000 will be charged at 5%. Thus in a property valued at £300,000 you will be charged 5% of £50,000 which is another £2500. With all these costs added together your total stamp duty will come to £5000 for a first time buyer.
However if you are looking to buy a second home you will incur a lot more stamp duty. This is due to there being an additional 3% banding on the stamp duty.
Here is what it would look like if you are buying a second property for £300,000.
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You pay 3% on the first £125,000, which is £3,750
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You pay 5% on between £125,000 and £250,000, which is £6250
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You pay 8% on the value of the property above £250,000, which is £4000
- So in total this means you'll pay £14,000 (£3,750+£6,250+£4000).
Contact us now to discuss your personal options, Revolution Finance Brokers specialise in commercial and residential finance in Essex, Kent, London and Hertfordshire.
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