Stamp Duty In The UK

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Stamp Duty Land Tax (SDLT) is levied on properties bought in UK, which is different for different price ranges, and applicable to the purchase of flats, land, house or any other building be it residential o non-residential.

From April 1, 2015 SDLT will not be applicable to people of Scotland; instead they will have to pay a Land and Buildings Transaction Tax when buying a property.

Chancellor George Osborne said in his autumn statement to the parliament, just before the next coming general election, it is big bonus from a customer perspective and the regulations change regarding stamp duty will come into effect very soon. Stamp duty until now has been a major expense for all property buyers in UK, due to the high trigger points set many were penalized by the system structure.

Under the previous rules, any property bought for £250,000 would have generated £2500 in stamp duty; however a property just above £250,000 would have generated £7500.03 which is hugely different.

The factors Stamp Duty Land Tax depends on are:

1. The price of purchase of the property.

2. Whether the property has been bought with intent to use it residentially or non-residentially.

Stamp duty could also be applicable on leased properties.

 

Previous rates:

Previously stamp duty was being charged at a common rate for the entire property price, from 4th December 2014, it will be charged based on price ranges of properties.

If you have exchanged contracts of property hand over on or before 3rd December and have finished formalities on 4thDecember or after that, you could choose to pay with whichever stamp duty you feel more comfortable with, the before change one or the after change one.

Stamp duty for Residential properties

  • 0% if the property price is under £125,000
  • 2% for the next £125,000
  • 5% for the next £675,000
  • 10% for the next £575,000
  • 12% for the rest (above £1.5 million)

Take this example, if you buy a property worth £275,000, you will have to pay £3,750 of stamp duty.

This is calculated on the three components as follows:

  • 0% for the first £125,000
  • £2,500 for the next £125,000 (2%)
  • £1,250 for the remaining £25,000 (5%)

Under old system, a flat rate of 3% would have been applied to the whole property price of £275,000 which calculates somewhere around £8250, so a home buyer would save up to a substantial amount of money under this act, average stamp duty for the whole property will be 1.33%.

Stamp duty for corporate bodies

Stamp duty on residential properties which costs more than £500,000, and has been bought by a company or collective insurance schemes is charged 15%.

The exceptions are a property bought for rental, a property developed on resale trade and properties which provides admission to the visitors commercially, for these properties stamp duty will be charged on the new ate.

Stamp duty on Residential leases

If your residentially leased property is worth more than £125,000 then you will have to pay 1% stamp duty on the on the amount which is beyond the £125,000 limit.

Stamp duty on Non-residential properties and mixed-use properties

The stamp duty is:

  • 0% if the property price is up to £150,000 (annual rent of less than £1,000)
  • 1% for properties up to £150,000 (annual rent of £1,000 or more)
  • 1% for properties between £150,001 and £250,000 (rent of £1,000 or more)
  • 3% for properties between £250,001 and £500,000 (rent of £1,000 or more)
  • 4% for properties over £500,000 (rent of £1,000 or more)

Special rules regarding stamp duty

 

However the changes do not benefit property buyers who are generally considered high earners, properties that cost the most have been hit with a heavy stamp duty. A property costing £2,500,000, which would have generated a stamp duty of £175,000, about 7% of the property price under the old regulations, will see the stamp duty rise to £213,750 which is effectively around 8.55% of the property price. Considering people who can afford such price on their property would have an income which won’t be affected much by the slight 1.55% hike in stamp duty, all in all this has been a welcomed change for many.

But average properties in UK would cost around £186,000, so majority of the buyers will see benefits from this price capping of stamp duty, which is considered a bad tax will at least put the buyers somewhat at ease with the new effective rates. Considering most of the buyers belong from middle and upper middle class this Stamp Duty change has been really beneficial to them.