Date posted: 27/10/2020

Category: Sales News

Author: Alex

Stamping out the confusion of stamp duty

This year will go down in history as one of the most strange, scariest and fraught with change. For the most part, it has been a difficult year, but there have been some positives – more time with family spent at home is one of the key ones. And thanks to this focus on homelife, and the changes in certain legislation, the housing market has seen a boom that is unrivalled in recent years. The key driver for this increase is most likely to have been the changes in stamp duty payable which were announced on 7th July 2020. With 78% of the homes listed on Rightmove beneath the new threshold, this means that as many as 9 out of 10 house buyers will pay no stamp duty at all according to the Treasury.

But what exactly is stamp duty?

Stamp Duty Land Tax, or stamp duty as it is more commonly known, is a tax you might legally have to pay when buying a residential property or some land in England. If you buy property or land up to a certain value, you are exempt. But over that value, the amount you have to pay goes up incrementally. So the original rules for a single property were:

Up to £125,000 – 0% payable

From £125,001 up to £250,000 – 2% payable

From £250,001 up to £925,000 – 5% payable

From £925,001 up to £1,500,000 – 10% payable

Over £1,500,000 – 12% payable

There were a couple of other points to consider too; if you were a first-time buyer, you did not have to pay any stamp duty on the property up to a value of £300,000. 5% was then payable thereafter to the value of £500,000. So if your first home was £400,000 for example, you would pay stamp duty of £5,000 (5% of the £100,000 value above the £300,000 threshold).

If you were buying a second property (whilst keeping your first), there was an additional rate to pay too. So if you already have a house and are buying a second (whether as a buy-to-let, holiday home or whatever), you needed to pay the following rates:

Up to £40,000 – 0% payable

From £40,001 up to £125,000 – 3% payable

From £125,001 up to £250,000 – 5% payable

From £250,001 up to £925,000 – 8% payable

From £925,001 up to £1,500,000 – 13% payable

Over £1,500,000 – 15% payable

NB: You won’t need to pay stamp duty if you re-mortgage your existing property – it is payable on new property purchases only.

What has changed?

A stamp duty ‘holiday’ was introduced, which started on 8th July, 2020 and will come to an end on 31st March, 2021. It basically means that you won’t pay any stamp duty at all on the property’s value up to £500,000. The rules are the same whether you are a first-time buyer or simply moving on. To be clear, here are the current rates:

Up to £500,000 – 0% payable

From £500,001 up to £925,000 – 5% payable

From £925,001 up to £1,500,000 – 10% payable

Over £1,500,000 – 12% payable

If you are buying a second (an additional) home, you will still have to pay stamp duty on a property costing more than £40,000. It will be based on the revised rates for first homes with an additional 3% added.

What difference do the changes make to you?

Well, if you are considering buying a house, it can make a big difference financially! Dependent on the value of the property you are planning to purchase, it can save you a huge sum. If you’re going to spend over £500,000 for example, you will save the maximum amount of £15,000 which can make the buying process an awful lot easier!

Whereas you would have paid £10,000 on a property costing £400,000, now you’ll pay nothing (2% would have been payable on the £125,000 up to £250,000, with 5% payable on the £150,000 up to £400,000). And if you were planning on spending £200,000, you will be saving £1,500.

This money you have saved can be used in a variety of ways:

  • Simply pocket it and keep it as rainy-day funds – costs sometimes crop up when you move
  • Spend it on improving the new house in some way, such as a new bathroom, which will increase its value
  • Put it towards your deposit and potentially reduce the amount you are borrowing or even the term of your mortgage. This could in turn save you a great deal of money on the interest you would have otherwise had to pay

What’s our verdict?

Take the plunge and move home now! You will be saving yourself a great deal with this reduction in tax and as a result of it, more and more people are wanting to move. This means that the house of your dreams is likely to be available so you don’t want to miss out on it. All you need to do is ensure you complete before the deadline of 31st March, 2021.

Buying your first home or moving house is one of the most challenging times both financially and emotionally. By saving on your stamp duty, at least one of the concerns is eased slightly! So we recommend you take advantage of this fantastic change in the rules before they revert back to normal in April 2021.


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