What is stamp duty?
Stamp duty land tax – to give it its full name – is a lump-sum tax that anyone buying a property or land costing more than a set amount has to pay. The rate you’ll pay the tax at varies based on the price of the property and the type (we’ll focus on residential buildings, rather than commercial).
Sweeping changes to stamp duty were announced in the Chancellor’s Autumn Statement in December 2014. Stamp duty has been reformed – the slab system (where you’d pay a single rate on the ENTIRE property price) has been swept away, and in its place is a more progressive system.
Under the new system, you’ll only pay the rate for the proportion of the property that’s at that rate. It’s quite complex, so here’s an example to better illustrate the changes:
Let’s assume you’re buying a property for £300,000.
Old system: You would have paid 1% on a property between £125,000 and £250,000, but 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: You pay nothing below £125,000; 2% on between £125,000 and £250,000, and 5% on the value of the property above £250,000. So in total this means you’ll pay £5,000 (£0+£2,500+£2,500).
What rate will I have to pay?
As the price you pay for a new property increases, so do the rates of stamp duty. You pay a percentage of the cost, and the rate payable leaps up at a set of thresholds – but, you only pay the proportion of the purchase price that’s actually above the thresholds at the higher rate.