The amount you pay depends on how expensive the property is. The stamp duty threshold is currently £175,000. This means if you buy a home worth more than £175,000, you have to pay stamp duty on the purchase. The threshold was raised from £125,000 to £175,000 on 3 September 2008 as part of a government initiative to kick start the stagnating housing market.
The move will save eligible buyers £1,750. Although the Royal Institution of Chartered Surveyors (RICS) says this is a drop in the ocean compared to the £27,738 average upfront costs needed to buy a home. It also claims some nine out of 10 property purchases will be unaffected by the band movement. The tax break applies until 3 September 2009, when the threshold will be reviewed.
If the price is between £175,000 and £250,000, you pay stamp duty at one per cent of the total purchase price – not just the portion over £175,000. If the purchase price of your home is between £250,000 and £500,000, then a higher rate of three per cent applies; and for properties over £500,000, stamp duty is charged at four per cent.
The current 'slab system' of stamp duty is often criticised by industry bodies as it means buyers pay duty on the full price of the property when each threshold is reached. So properties sold for a fraction more than £250,000 currently pays three per cent duty on the full price, rather than on the marginal amount over £250,000.
Furthermore, as with income tax bands, the government benefits from something called 'fiscal drag', where stamp duty bands stay static, but property prices rise and expose more and people to greater levels of tax liability. And the fact that these thresholds, unlike income tax, are not indexed is also unfair, say critics.
Campaigners want the current system to be overhauled. RICS favours a two-tier marginal system. With this, a 2.5 per cent charge would be applied for homes up to £250,000, with a five per cent rate applying on homes in excess of this threshold. Currently a buyer looking to purchase a £250,000 property will pay £7,500 in stamp duty. Under the RICS proposal a buyer would pay only £2,500, which it says would make the property market more accessible, particularly for first-time buyers.
Use the Revenue’s Stamp Duty calculator to find how much you’ll owe.
* You don’t have to pay stamp duty on residential property in disadvantaged areas where the purchase price is £150,000 or less. Use the government’s website to find out which areas qualify.
* If you build your own home, you pay duty only on the value of the land. If the land is worth less than £125,000 you don’t pay stamp duty. Use Plotfinder to find bargain plots for sale.
* You don’t have to pay stamp duty if you buy a ‘zero-carbon’ house. Your home will have to meet strict energy-saving regulations though.
* If the purchase price of a property is just over the £175,000, £250,000 or £500,000 threshold, the amount of stamp duty you pay rises significantly. To reduce this burden you can apportion some of the money that might have been paid for the property to assets other than bricks and mortar says Ray Boulger of Charcol. ‘If you were to pay £260,000 for the property, the stamp duty bill would be £7,800, but if you agree with the seller to pay £10,000 for fixtures and fittings and £250,000 for the property, then the duty bill would be £2,500,’ he explains. Fixtures and fittings can include carpets, curtains, light fittings, and white goods. However Boulger points out that the Revenue has the right to check all transactions, so you need to make sure that everything you do is above board. ‘Draw up a list of the fixtures and fittings concerned, ensure the sum agreed is realistic and make this official through your solicitor,’ he advises.
Discover more about stamp duty at www.direct.gov.uk.
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