Have stamp duty changes made it challenging for lower end of market?

stamp duty

In April 2016, Stamp Duty changes were introduced that required property investors and second property owners to pay an additional three percent.  These changes aimed to make things easier for the lower end of the property market, but it has been argued that they have, in fact, had the opposite effect.

If you are planning to buy a property, you probably have a few questions about Stamp Duty, and those changes.  Do the Stamp Duty changes affect me? What is Stamp Duty? How much is Stamp Duty? When do you pay it? We have the answers to all of your Stamp Duty questions!

What is Stamp Duty?

It is commonly referred to simply as ‘Stamp Duty’, but its full title is Stamp Duty Land Tax.

Stamp Duty is a tax payable on land or property that you purchase.

How much is Stamp Duty?

Stamp Duty is calculated using a tiered system.  On property worth up to £125,000, no Stamp Duty is payable.  For properties worth between £125,000 and £250,000, you will pay nothing on the first £125,000 and then two percent on the remaining balance.  For properties worth between £250,000 and £500,000, you will pay nothing on the first £125,000, two percent on the next £125,000 (which takes you up to a value of £250,000), and then five percent on the remaining balance.

If you are a first time buyer, you are required to pay less stamp duty.

Purchase PriceStamp Duty Payable (assuming you are not a first time buyer and this is your main residence)
Up to £125,0000% of the property purchase price
£125,000-£250,0002% of the property purchase price
£250,000-£925,0005% of the property purchase price
£925,000-£1,500,00010% of the property purchase price
£1,500,000+12% of the property purchase price

How much is Stamp Duty on a house? Do you pay less for a smaller property?

How much Stamp Duty you pay is not affected by the size of your property, but how much it is worth.  The more you agree to pay for the property, the more Stamp Duty you will be required to pay.

What is the Stamp Duty threshold?

The Stamp Duty threshold is the property price point at which you are required to pay Stamp Duty.  You will not be required to pay Stamp Duty on any property that costs less than the Stamp Duty threshold.

The current Stamp Duty threshold is £125,000 for residential properties and £150,000 for non-residential properties and land.

When do you pay Stamp Duty?

Stamp Duty is payable within 30 days of the completion of the property purchase.  Your solicitor will usually calculate the Stamp Duty payable, and will pay the amount due to HMRC on your behalf, having collected the funds from you in advance.

Stamp Duty on houses

Stamp Duty is payable whether you are purchasing a house or a flat, and whether the property is freehold or leasehold.

Stamp duty on mobile homes, caravans and canal boats

Unlike traditional, permanent ‘bricks and mortar’ properties, those buying a mobile home, caravan or canal boat are not required to pay Stamp Duty.  Stamp Duty is payable when land ownership changes hands, but those buying a mobile home, caravan or canal boat are not purchasing the land their property sits on, just the dwelling itself.

Stamp Duty on shared ownership

If you are buying a shared ownership property, you are still required to pay Stamp Duty.  You can choose whether to pay the full Stamp Duty amount up front (based on the full market value of the property, even if you are only buying a share of the property), or pay in stages.

If you choose to pay the full amount, you will not be required to pay any additional Stamp Duty if you buy an additional share of the property in the future.

If you choose to pay in stages, you will make your first payment based on the value of the share you are buying.  If you then go on to purchase a greater share in the property, you do not need to pay any additional Stamp Duty until you own more than 80 percent of the property.

Stamp Duty first time buyers

The Stamp Duty changes introduced in April 2016 aimed to make things easier and fairer for first time buyers, but independent property buying agency Black Bricks claims they have not had the desired effect.

Instead of helping first time buyers, the agency suggests that landlords have simply changed their strategy and learnt how to avoid Stamp Duty on house purchase deals.  Instead of purchasing larger, more expensive properties, and be subjected to greater Stamp Duty bills, Black Bricks says landlords are choosing to buy a greater number of cheaper properties that require little or no Stamp Duty.  This has, they argue, resulted in greater competition for entry-level properties, and a more challenging property market for first time buyers.

There is some relief for first time buyers, however, in the form of Stamp Duty relief for the purchase of your first property.  If you are a first time buyer, purchasing a property worth up to £300,000 you are no longer required to pay Stamp Duty.  If the property you are purchasing is worth between £300,000 and £500,000, you will pay no Stamp Duty on the first £300,000, and then five percent Stamp Duty on the remaining balance.

How much do landlord have to pay in buy to let Stamp Duty?

Since April 2016, landlords – any anyone else who owns more than one property – have been required to pay a higher level of Stamp Duty.

Value of propertyStamp Duty rate for owners of one propertyStamp Duty rate for buy-to-let investors (and others with more than one property)
£0 – £125,0000%3%
£125,001 – £250,0002%5%
£250,001 – £925,0005%8%
£925,001 – £1,500,00010%13%
£1,500,000+12%15%

 

This additional 3% has had a big impact on the amount of Stamp Duty investors are required to pay.

Value of propertyStamp Duty payable before April 2016Stamp Duty payable since April 2016How much extra they are now required to pay
£120,000£0£3,600£3,600
£150,000£500£5,000£4,500
£250,000£2,500£10,000£7,500
£350.000£7,500£18,000£10,500
£550,000£17,500£34,000£16,500
£1m£43,750£73,750£30,000

Stamp Duty on second property

It is not just landlords and property investors who are required to pay additional Stamp Duty.  Those with holiday homes or any other second property also face the additional three percent Stamp Duty.  The idea is that anyone who can afford to own more than one property, when so many people are struggling to get onto the property ladder, should be required to pay a premium to do so.

My partner and I are buying our first property together, but he already owns a flat – will we be required to pay the additional Stamp Duty?

Unless your partner is planning to sell the flat he currently owns, you will be required to pay the additional 3% Stamp Duty as you are considered a joint unit when purchasing a property together.

If your partner decides to sell his flat within 18 months of purchasing your new property, you are able to claim a refund of the extra 3% Stamp Duty.

My wife and I would like to help our daughter purchase her first property, would we need to pay the extra 3% percent Stamp Duty?

That will depend on how you are planning to go about assisting her with the purchase.

If you are simply gifting her a sum of money to help finance the purchase, and you do not have any sort of ownership of the property, your daughter will not be required to pay the higher rate of Stamp Duty.

If, however, you and/or your wife are planning to purchase the property with your daughter (ie. you are named on the deeds/in the mortgage documents), and you already own your own residence, it will count as a second property.  You and your daughter are treated as a unit if purchasing the property together, so you will be required to pay the additional 3% Stamp Duty.

I currently own a main residence and a small holiday home.  If I decide to move, selling my main residence and buying another property, will I need to pay the extra Stamp Duty?
Although you own more than one property, if the property you are replacing is your main residence, you will not be required to pay the additional 3%.
The idea is that those who purchased a holiday home before the Stamp Duty changes should not be penalised retrospectively.
If you are planning to go down this route, you cannot simply ‘elect’ which property is your main residence, however.  You will be required to provide evidence that the property you are replacing is your main property.
Elements to be considered may include where you spend more nights throughout the year, where you are registered to vote and where you are registered with a doctor’s surgery etc.

 

This content was written by Quick Move Now
Published on 11th August 2015
Last updated on 4th January 2019

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