Stamp Duty Land Tax is a controversial issue for some. Originally introduced as a historic tax in 1694, it is something that is unavoidable if you are buying a house.
You must pay this tax by the official moving-in date (or possession date) of your new home.
The stamp duty that we recognize today was first introduced in 2003, and has just undergone the biggest change since it was introduced.
How does stamp duty work?If involved in the purchase process, you should discuss Stamp Duty Land Tax with your solicitor, so that they can ensure that you do not miss the payment deadline.
Remember, only the buyer will pay stamp duty - not the seller.
First time buyers used to be exempt from stamp duty, but this changed on the 24th March 2012.
Now, just like anybody else, first time buyers must pay stamp duty on properties valued over £125,000 - whether the property is freehold or leasehold.
But why do we need to pay it at all?
Is stamp duty a necessary tax?When purchasing a property, the ownership of the land changes from the previous owner to you (the new occupier) – and it must be legally and officially registered.
This requires a Certificate of Land Ownership from the HMRC, and the only way to get that is on receipt of the stamp duty payment.
If you don’t pay stamp duty on your new home, you won’t be allowed to officially purchase the property (unless you’re exempt, see below).
However your solicitor will be able to deal with any issues connected with Stamp Duty Land Tax.
Stamp duty is a necessary tax that must be paid on all homes bought over £125,000.However the new changes introduced mean that you may pay less stamp duty than under the old rules.
David Hollingworth, Head of Communications at London and Country, says that the new changes to stamp duty have made the market a little bit fairer.
“Stamp Duty Land Tax isn’t something that can be avoided when buying a home, although the new stamp duty structure introduced in December 2014 has helped smooth out the huge jumps in the cost at certain prices that was an issue with the previous method of calculation,” he said.
“Nonetheless it’s still certainly a cost that needs to be accounted for when budgeting for a move and can lead some to consider improving their current home rather than move.”
How to handle stamp duty taxThere are several things you can do in order to prepare yourself for a stamp duty payment, which could amount to thousands:
- Subtract the value of certain items from the total price of the property –carpets, curtains, light fittings and other similar items can all be subtracted from the total house price when calculating your stamp duty.
- Look at a calculator – using a stamp duty calculator can be very beneficial when it comes to working out your tax threshold
- Choose your area – some areas, usually those that are more “disadvantaged”, offer some stamp duty discount and rebates.
- Choose a new build – if you choose certain new build properties, sometimes that particular housing company will pay for your stamp duty as part of the package. Or you may be eligible for a tax break if your home is registered as zero-carbon.
The New Stamp Duty Land Tax Thresholds
- No tax on the first £125,000 paid
- 2% on the portion up to £250,000
- 5% on the portion up to £925,000
- 10% on the portion up to £1.5 million
- 12% on everything over that
Those that oppose the new changes claim that the move could potentially raise housing demand and affect prices so much that the savings made on Stamp Duty will become almost entirely irrelevant.
For most people, Stamp Duty Land Tax is an inevitable part of the purchasing process, and it’s not the only cost of buying a home to deal with.