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How much Stamp Duty will I have to pay?

17 Nov 2019 | Almas Uddin
How much Stamp Duty will I have to pay?

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.

What is Stamp Duty and why am I Charged?

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:

  • Up to £125 = 0%
  • £125K to £250K = 2%
  • £250K to £925K = 5%
  • £925K to £1.5m = 10%
  • Anything over £1.5m = 12%
 

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:

  • You pay nothing below £125,000, which is £0
  • You pay 2% on between £125,000 and £250,000, which is £2,500
  • You pay 5% on the value of the property above £250,000, which is £2,500
  • 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.

 
  • You pay 3% on the first £125,000, which is £3,750
  • You pay 5% on between £125,000 and £250,000, which is £6250
  • 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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