For those looking to buy property or land in the UK, a tax will usually need to be paid.
Stamp duty, a tax you pay if you buy residential property or land in England or Northern Ireland at a certain price, is about to change.
The tax has already been paid on properties worth £ 500,000 or more, but was temporarily suspended last year.
Chancellor Rishi Sunak announced a stamp duty suspension last July to keep the real estate market moving during the coronavirus pandemic.
This suspension is now expected to expire on June 30, unless Mr. Sunak announces further extensions of the tax-free leave.
This means a number of changes for those who want to own a home or buy a new home.
However, an online petition calling for stamp duty to apply when contracts are exchanged, rather than at the point of completion, has been submitted to the government.
More than 12,600 people have signed the petition on the government website request the tax change – the stamp duty to be applied when exchanging contracts.
But what is stamp duty and who does it affect?
We’ve decided to look at some of the key stamp duty issues and changes below.
Stamp duty – when you have to pay it
You have to pay stamp duty (land stamp duty) if you buy property or land for a certain price in England and Northern Ireland.
In Scotland it is known as the Land and Real Estate Transaction Tax, while in Wales it is known as the Land Transaction Tax.
You have to pay tax in England and Northern Ireland for:
- buy a freehold property
- the purchase of a new or existing lease
- buying a property under a shared ownership regime
- transfer land or property in exchange for payment, such as taking out a mortgage or buying a share in a house.
Stamp duty is subject to thresholds
The threshold is when the stamp duty begins to apply.
If you buy a property for less than the threshold, you don’t need to pay the tax.
The current stamp duty threshold for residential properties is £ 500,000, but that changes on July 1, 2021.
The threshold for non-residential land and property is £ 150,000.
What will happen after June 30?
The thresholds will change as the UK begins to exit lockdown restrictions after the pandemic.
In March, Chancellor Rishi Sunak told MPs that the thresholds would change after June 30.
The threshold from July 1 to September 30, 2021 will be £ 250,000 – this means you won’t have to pay stamp duty on residential properties costing up to £ 250,000.
Any amount of £ 250,000 or more will incur a tax.
For land and non-residential property, stamp duty will need to be paid on anything that costs £ 150,000 or more.
From October 1, you’ll pay stamp duty on properties costing over £ 125,000 for residential properties and £ 150,000 for land and non-residential properties.
From July 1, 2021, you will benefit from a discount (relief) which means that you will pay less or no tax if the following two conditions apply:
- you, and anyone else you buy with, are first-time buyers
- the purchase price is less than or equal to £ 500,000
You will also be entitled to this discount if you bought your first home before July 8, 2020.
If you are lucky enough to buy a second home …
If you are lucky enough to buy a second home you will still pay an additional 3% stamp duty on properties costing over £ 40,000 at the rate going on at that time.
This tax applies to both freehold and leasehold properties, whether you buy directly or with a mortgage.
How much does the stamp duty cost?
The amount you pay depends on whether the land or property is residential or non-residential or mixed-use according to gov.uk.
If you are buying residential property, the stamp duty rates are different if:
- you are a first time buyer
- you already own a property and you are purchasing an additional property
- you are not a UK resident
You can use HM Revenue and Customs (HMRC) Stamp duty property tax calculator to determine the amount of tax you will pay.
For example, if you buy a house for £ 575,000, the stamp duty property tax you owe is calculated as follows:
- 0% on the first £ 500,000 = £ 0
- 5% on the last £ 75,000 = £ 3,750