Helping UK new home buyers
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Stamp duty was first introduced in the UK in 1694 to pay for the war with France and was only intended for four years. However, it generated such high revenues for the government that it was never repealed. In 1958, stamp duty on house purchases was only payable if the value was over £3,500 - 71% more than the average house price. In 1984 the threshold for stamp duty on property was increased from £25,000 to £30,000 with the highest rate of stamp duty reduced from 2 per cent to 1 per cent.
In the last property slump in 1991 the Conservative government temporarily suspended stamp duty for nine months on all properties worth less than £250,000 in an attempt to stimulate the housing market. In the financial year 2007/08 the Inland Revenue received £6.5 billion from residential stamp duty. Gordon Brown’s 2005 Budget increased the zero rate stamp duty threshold from £60,000 to £120,000 increasing it again in the next Budget to £125,000.
Stamp duty bands
£0 - £125,000
£125,001 - £250,000
£250,001 - £925,000
£925,000 - £1.5m
Total Stamp Duty payable
SDLT is a property tax paid by purchasers. If the purchase price is £125,000 or less you don’t have to pay stamp duty. Before it was reformed, unlike income tax rates, the stamp duty percentage rate was levied on the TOTAL purchase price of the property transaction, not just the proportion over each threshold as it is from 4 December 2014. This will include all extras that are added to and included in the price. It may be a good idea to pay separately for optional extras if you can to avoid paying stamp duty on them. The amount of Stamp Duty payable varies in relation to the purchase price.
Stamp Duty reform 4 December 2014.
The old “slab structure” was reformed by George Osborne, copying recent changes to stamp duty in Scotland. From 3 December 2014, the stamp duty tax due at higher rates will only be applied to the portion above each threshold, not the total selling price as previously, in the same way income tax is calculated.
Under the new system, there will still be no tax on property purchases up to £125,000.
Above that there will be several bands:
For example: On a £300,000 house purchase there would be no tax to pay on the first £125,000, then 2% on the next £125,000 (£2,500) and 5% on the remaining £50,000 (£2,500). That’s a total £5,000 compared with £9,000 under the old system – a saving of £4,000.
According to the treasury, everyone buying a house for less than £925,000 (98% of buyers) will be better off under the new system. In 2013-14 the Treasury took £6.45bn from Stamp Duty tax, an increase of 74% on the 2003-04 figure, even though there were fewer transactions. Sales in London accounted for nearly 42% of the stamp duty raised.
With the previous system, once the thresholds were exceeded, even by a small amount, there was a marked increase (over £5,000) in stamp duty. It was therefore sensible to avoid properties that were priced just over the thresholds. For example a house costing £265,950 would have cost £5,479 in additional in stamp duty, so the new system is fairer and prevents the market becoming distorted, with house prices bunching just below thresholds. It is no longer necessary to negotiate a deal with the seller to bring the “price” under the £250,000 or £500,000 thresholds or get the seller to pay towards the additional stamp duty for homes costing less than £925,000.
SDLT is an unpopular tax burdening first-time buyers and areas of the country with higher property prices such as the south of England. Not surprisingly, it also means property asking prices are bunched together just under each threshold.
If you decide to buy a property in an area designated by the government as 'disadvantaged' you may qualify for Disadvantaged Areas Relief. If this is the case the nil-rate Stamp Duty threshold is increased to £150,000. You can check if the area you are considering is an area designated as disadvantaged by using the postcode search tool at www.hmrc.gov.uk/ This is for guidance only and does not identify every postcode. New home buyers should note that newly-built properties in particular may not come up, but the house builder’s sales staff will know if relief is applicable.
Relief from Stamp Duty Land Tax (SDLT) was introduced in October 2007. All qualifying new homes under £500,000 are EXEMPT. For homes exceeding £500,000 the Stamp Duty payable is reduced by £15,000. Zero Carbon homes must have sufficient additional renewable power to cover the average consumption of the house over the course of a year. This effectively means that the house will need to be insulated and built to very high standards and incorporate the latest heat recovery and renewable energy technologies.
After the Royal Assent to the Finance Act 2011, anyone who buys several residential properties at the same time, could reduce Stamp Duty Land Tax rates from 5% to the minimum 1%.
Under the new relief, the percentage rate charged will be based on the average price paid for each home in the transaction. It is not automatic but can be claimed by the purchaser.
For example if a detached house were bought for £510,000 and two flats at £119,000 each, the total transaction cost would be £748,000 with an average price per property of £249,333. This would then incur the 1% rate of Stamp Duty Land Tax on the whole amount (£7,480) as opposed to 4% on the £510,000 house (£20,400) a saving of £12,920 in the Stamp Duty Land Tax incurred by the transaction. Multiple Dwelling transfer SDLT relief
This benefits anyone buying a higher price new home, buy-to-let investors and developers who will be able to use this as a multi-buy incentive.
There are several types of schemes available for companies purchasing property over £500,000. Specialist solicitors can legally remove Stamp duty liability altogether from property purchases of £250,001 or more. This is claimed to be a straightforward and legitimate way to save a significant amount of money. However, tax consultants can charge a fee of around half the SDLT plus vat and a solicitor will add around £1000 plus vat to implement the scheme. Scheme providers often quote a 9-month enquiry period, but be aware the HMRC can issue a discovery assessment for up to 6 years after completion.
Although tax avoidance schemes are legal, HMRC will work to shut them down if they deem them to be 'aggressive' and reclaim all tax lost.
www.kinsellatax.co.uk offers advice if you have entered a tax avoidance scheme.
External Links - How to Avoid Stamp Duty
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