Stamp Duty is the name of a tax that people who buy homes pay to the government. The official title is Stamp Duty Land Tax, which is no more interesting or informative. It got its name because when you received your legal documents after buying a house and paying the tax, they were physically stamped!
Do I need to pay Stamp Duty?
If you are buying a home worth more than £125,000 you need to pay Stamp Duty. But if you are a first-time buyer you do not pay stamp duty on properties worth less than £300,000. We’ll explain more about that further in this blog.
You pay the tax for all properties, whether they are freehold or leasehold. You must pay it whether you’re buying outright or with a mortgage. It’s why in an earlier blog, we said you must remember to budget for paying the tax when you’re looking for a mortgage. Don’t forget it as you’ll need to find the money should you have to pay Stamp Duty.
How much will I pay?
Your Stamp Duty bill will depend on the cost of your house. You pay a percentage of the price of your new home. The table below explains more.
To explain how it works in reality, let’s imagine you’re buying a house for £275,000. This is how your tax bill is calculated:
0% on the first £125,000 = £0
2% on the next £125,000 = £2,500
5% on the final £25,000 = £1,250
This means your Stamp Duty will be £3,750.
|Minimum property purchase price||Maximum property purchase price||Stamp Duty rate (only applies to part of the property price falling within each band)|
|More than £1.5million||12%|
If you want to know more, we recommend the government’s Stamp Duty calculator so you have an idea about what you will need to pay.
As mentioned earlier, the table above is only for those people who have already bought a property and are up or downsizing.
If you are a first-time buyer, then there is tax relief for you up to £5,000. It means you won’t pay Stamp Duty on a property on the first £300,000 if that home is worth up to £500,000.
In the North East, which is the area The Mortgage Dog most often works in, that means most first time buyers will pay no tax. But in the South East, the prospect of paying more for a home is a reality. So how does that affect you?
If you want to buy a property for £480,000, then you only pay Stamp Duty on £180,000 as of the first £300,000 benefits from the relief. If the property is worth more than £500,000 you will pay Stamp Duty, even as a first-time buyer
Married first-time buyers
If you’re married and both of you have never owned a house before, you will be eligible for first-time buyers’ Stamp Duty relief. But if one of you has owned a house, then you will not be able to take advantage of the scheme.
It is the same for unmarried couples but be aware of the fact that you only get up to £5,000 relief, it doesn’t double just because you have two names on the mortgage deeds.
If your mortgage application is in one name, it will be based only on that person’s income.
Also, if you’re thinking of making a mortgage application in one name to be eligible for the relief, also consider what would happen if you split up! It would mean only the named person has a right to stay in the home or benefit from the sale value.
When do you pay?
You have just 14 days to file a Stamp Duty Land Tax and pay the outstanding amount. The period usually starts from the date of the transaction, which is usually the day you complete on the purchase of your home.
Don’t delay, as HMRC may charge interest and penalties if you don’t meet the 14-day deadline.
How do I pay?
Your solicitor usually deals with the Stamp Duty return and the payment. You can do it yourself too, but whichever you prefer be aware that you are responsible. So make sure you ask your solicitor about it to ensure you’re not caught out.
Even if your home is under the threshold, you must still submit a return even though you won’t pay anything.
If you have any questions about Stamp Duty contact The Mortgage Dog team for information. We’re always happy to help
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Expiry Date: 23/11/2020