You hardly need reminding that it’s tough to to be a first time buyer. But one problem – and it just happens to be Britain’s oldest tax – has become easier.
This is of course Stamp duty, originating in the 17th century and imposed to cover the cost of registering a change in ownership at a government office called the Land Registry.
This process requires a stamped certificate from Her Majesty’s Revenue and Customs – the tax man to you and me – but HMRC will provide this only when the duty is paid.
So how is it easier?
Well, stamp duty used to be charged on a ‘slab’ basis. So buying a home for £250,000 meant you paid the old charge of one per cent duty on the full price, making it £2,500.
But if you bought, say, a £260,000 home you would have been in the old three per cent category applied across the whole price – so the duty would become a whopping £7,800.
This slab system was considered unfair and a disincentive for buyers. Therefore stamp duty in England, Wales and Northern Ireland is today levied like income tax.
Up to £125,000 it’s zero, and over £125,000 to £250,000 it’s two per cent. Then from over £250,000 to £925,000 it is five per cent.
On that £260,000 home you therefore today pay no duty up to £125,000, then two per cent above £125,000 to £250,000, and then five per cent above £250,000 to £260,000.
It adds up to just £3,000 and in this example saves you £4,800.
There are a few exceptions to stamp duty – but don’t raise your hopes.
There’s no duty at all on zero-carbon homes (but these are rare) while some Right To Buy properties, where tenants purchase their council home, have reduced duty. In Scotland, stamp duty doesn’t exist but there is Land and Building Transaction Tax which is roughly similar and means that north of the border, our £260,000 home would cost £2,600 in LBTT.
Across the rest of Britain buyers of almost all homes sold for above £125,000 have no choice but to pay stamp duty within 30 days of moving in.
In reality, it happens quicker because it’s handled by your conveyancer – that’s the expert you will have instructed to handle legal elements of the purchase.
Sometimes a mortgage lender may offer to add the stamp duty to the loan for the house. It sounds tempting but try to resist: saving for stamp duty may be tough but it will cost less than adding it to a mortgage on which you repay not just the loan itself but interest as well.
One final thing – it’s always buyers who pay stamp duty. That’s not really unfair because as you move up the ladder and sell up, so someone will pay duty to buy from you.
As the saying goes ‘What goes around, comes around.’
Image Credit: Geograph
This article was provided exclusively to First Home News by Graham Norwood, a successful journalist who specialises in writing about residential property. Read Graham’s blog at Property News Hound or follow him on Twitter.