One of the most important things when it comes to purchasing a property is knowing what the actual cost is going to be, and one thing that a lot of first time biyers forget about is Stamp Duty.
Stamp Duty Land Tax or ‘SDLT’ is a tax paid by a buyer of property or land. The level of tax paid is dependant upon the value of the land and the nature of that purchase, in this article I will concentrate on residential purchases. SDLT starts a purchase price of £125,000 or over. See the below table for tax rates:
Purchase Price SDLT %
£125,000 and under None
Portion from £125,001 to £250,000 2%
Portion from £250,001 to £925,000 5%
Portion from £935,001 to £1.5million 10%
Above £1.5 million 12%
Say for example, the purchase price of a property is £300,000. Using the above table; SDLT would be at 0% of the first £125,000, 2% of the next £125,000 (£2500) and 5% of the remaining £50,000 (£2500) being a total of £5000.
The above is true for the purchase of single property, however if you are buying an addition property to ones you already own then a further 3% tax is levied above the standard rate of SDLT. Therefore in the above example, being bought as an additional property, the stamp duty would now be increased to £14,000 being made up of 3% of the first £125,000 (£3750), 5% of the next £125,000 (£6250) and finally 8% of the remaining £50,000 (£4000).
It is very important to know the level of additional tax you will have to pay as part of a property purchase. You can use a stamp duty calculator found at https://www.stampdutycalculator.org.uk/.
If you are replacing your main home you can claim a refund on additional SDLT paid on the 2nd property if the original home is sold within 3 years. Be sure to speak to your financial advisor about the detail of this refund.
The change to this current system of SDLT has had a number of effects in the property market. BTL investors are having to account for a much higher purchase price than a first time buyer / replacement purchase of the same property. Also, under the old system there was a price ceiling at £250,000 for a lot of property types as this as where stamp duty used to really make an impact on the property. Under the new system it has allowed property sitting around £250,000 to rise in value in accordance with the rest of the market which has been great news for a large number of families and owners looking to move into their next home as the value of theirs is being realised.
This is just a brief overview, and with all taxes SDLT can be much more in depth than it seems so please be sure to speak to your financial advisor abut any financial transaction you are undertaking to ensure you are doing things properly.
As always, I’m happy to have a chat about anything in the above article or anything related to property in the local area. Drop me an email to firstname.lastname@example.org
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