Understanding What Stamp Duty Means & How Much It Costs

While relatively small compared to the overall price of the property, the so called stamp duty is a tax you seriously have to consider when about to buy a property in England or Northern Ireland. The good news is there are a few rules that might work in your favour. For instance, the tax might be reduced every now and then – sometimes, cleared to nothing.

There is no tax to be paid if the property costs less than £500,000. On the other hand, if you buy a second home, you will need to pay extra in the stamp duty. First time buyers can normally avoid the stamp duty, but the rules change every now and then – reduced rates to certain dates, just to give you an example on how it works. So, what is this stamp duty after all?

Understanding the concept of stamp duty

The stamp duty only applies to England and Northern Ireland – Scotland and Wales do not have such taxes. It makes no difference if you buy an actual building (a house) or a piece of land – the stamp duty applies to any type of property. Now, things change regularly – for instance, you might be able to avoid the stamp duty if your property is less than £500,000.

This rule normally applies until March and it is not valid on a yearly basis, so double check upfront – sometimes, it might be worth waiting. In such cases, you can avoid the stamp duty even if this is not your first property. From this point of view, such times make it a bit difficult for first time buyers because many investors rush to buy.

Assuming you are in one of these times with no stamp duty and you want a property that costs more than £500,000, you will pay the stamp duty based on the value that exceeds this limit. If you are after a second home, you will still have to take stamp duty into account when analysing your budget – extra 3% if the property costs more than £40,000.

The tax applies to all types of properties – it makes no difference if it is a freehold property or a leasehold one. On the same note, it does not matter if you have the money for it or you plan to do it with a mortgage. Now, while there is no stamp duty in Scotland and Wales, each country has its own type of transaction tax.

The cost associated with the stamp duty

So, how much is the stamp duty? It depends on the band your property is in. If the property costs less than £500,000, you will not have to pay anything if you do it before March – again, every year may have different dates. If the property costs under £925,000, the stamp duty will go up to 5% of the selling price. If it reaches up to £1.5 million, the stamp duty costs 10%. Anything more than that involves a 12% rate.

It is important to know that the stamp duty only applies to the amount that exceeds the limit. For instance, if your desired property costs £600,000, you will pay the stamp duty for the extra £100,000 and not the whole selling value.

Bottom line, the stamp duty is seriously worth some consideration because it can add to the final price – and it is not a small amount. The good news is the first time buyers can avoid this tax, so they will not have to count it when assessing their financial needs – just the government’s way to help new buyers.

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