Stamp duty is changing – here’s what you need to know
From 1 April, changes will be made to stamp duty, meaning more first-time buyers will be forced to pay it and other home movers face a higher bill.
So what is it, what’s changing and what impact will it have? Here’s everything you need to know.
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What is stamp duty?
Put simply, it is a tax you pay when you purchase a property over a certain price in England and Northern Ireland.
The amount you pay is calculated based on the purchase price of your home.
When you start paying stamp duty varies depending on whether you are a first-time buyer or not.
How much is it at the moment?
Stamp duty is currently operating at reduced rates – the last Tory government temporarily implemented this and it has always been due to end.
The lower amount means buyers do not have to pay any stamp duty on the first £250,000 of the purchase price – meaning all homes bought under this amount are exempt.
They then have to pay 5% on the portion of the property price between £250,001 and £925,000, and 10% on anything between £925,001 and £1.5m.
Anything over that is charged at 12%.
Here’s an example:
If you buy a house for £295,000. The stamp duty you owe will be calculated as follows:
- 0% on the first £250,000 = £0
- 5% on the final £45,000 = £2,250
- Total amount = £2,250
First-time buyers do not have to pay stamp duty on purchases up to £425,000, and then pay 5% on the portion of the price from £425,001 to £625,000.
Anything over that is charged at the standard rates of stamp duty, as explained above.
What is changing?
From 1 April, the threshold at which first-time buyers start paying the tax will return to previous levels, dropping to £300,000 – meaning many more will be liable.
The rate is then 5% on the portion of the house price from £300,001 to £500,000. There’s no discount offered on the portion over £500,000.
Here’s an example:
You are a first-time buyer and purchase a property for £500,000. The stamp duty you owe will be calculated as:
- 0% on the first £300,000 = £0
- 5% on the remaining £200,000 = £10,000
- Total = £10,000
The stamp duty threshold for all other buyers is also reverting back – the nil rate level will fall to £125,000 from £250,000.
They will then have to pay 2% on the portion between £125,001 and £250,000 and 5% on anything between £250,001 and £925,000.
This increases to 10% on the portion between £925,001 and £1.5m, and even further to 12% on the remaining amount.
Here’s an example:
If you buy a house for £295,000. The stamp duty you owe will be calculated as follows:
- 0% on the first £125,000 = £0
- 2% on the second £125,000 = £2,500
- 5% on the final £45,000 = £2,250
- Total = £4,750
There is a tool you can use to work out the exact amount of stamp duty you will pay – you can find it here.
Property website Rightmove‘s analysis found that 74,000 buyers are expected to miss the 31 March deadline – at a collective cost of £142m.
What region will be the worst affected?
The impact of this change will be greatest in southern England, property website Zoopla found, with first-time buyers in London, the South East and the East of England hardest hit.
The London boroughs of Camden, Hammersmith and Fulham, and Islington will see stamp duty increase by an average of £15,000.
Just 5% of first-time buyers in northern England and the Midlands will be affected due to lower property prices.
What about second homes?
If you are buying a second home, you will be charged an extra 5% on top of the standard stamp duty rates.
The 5% surcharge also applies if your main home is abroad and your second home is in the UK, and if your second home is bought through a limited company.
Can you add stamp duty to your mortgage?
Yes you can, but it’s important to know that it could affect the loan-to-value ratio of your mortgage and incur interest charges.