New stamp duty and what it means for you
Finally, the ridiculous stamp duty tax has been changed for the better on 4th December 2014. We take a look at how that will save you lots of money!
Last night the Chancellor, George Osborne, had a few announcements to make - the most exciting of which was the huge shake up to stamp duty and it will most likely save you money!
How does stamp duty work now?
There are now banded tax brackets similar to how it was before but you only pay the higher stamp duty rates on the portion of the property price within that bracket, not on the entire value of the property. It is banded like income tax basically.
So you pay:
| Property price | Stamp duty |
|---|---|
| £0 - £125k | 0% |
| £125k - £250k | 2% |
| £250k - £925k | 5% |
| £925k - £1.5m | 10% |
| £1.5m+ | 12% |
But the key difference is that you only pay the percentage on that portion of the house price.
Give me an example
Lets look at some typical house prices:
| House type | Property price | Before | Now | Change |
|---|---|---|---|---|
| Starter flat | £150k | £1,500 | £500 | -£1k |
| Family home | £300k | £9k | £5k | -£9k |
| London home | £600k | £24k | £20k | -£4k |
| Large London home | £937k | £37.5k | £37.5k | £0 |
| Very large home | £1.8m | £90k | £130k | +£40k |
| For a laugh | £5m | £350k | £514k | +£164 |
So you can see, if you are starting off or buying a large family home you will be thousands better off! That money could go nicely towards your deposit if you are just starting out.
However I'm afraid if you were hoping to buy a home for over £925,000 you will not benefit and the higher you go towards the infamous "mansion" category the worse off you will be. However, this is only on new purchases so the dilemma of a mansion taxes on little old ladies that bought themselves a reasonable house in central London 50 years ago being taxed into the ground doesn't apply here.
What was it before?
Awful. The rates weren't wildly different but it was a slab style tax, meaning if you travelled just £1k over the £250k mark you would pay 3% on the entire £250,001 where as now you would only pay that higher rate (now only 2%) on the £1 that is over the £250k mark. For more details take a look at our old article: What is stamp duty and how much will it cost? but here is a quick example of the difference:
| Property Price | Before | Now | Change |
|---|---|---|---|
| £250,000 | £2,500 | £2,500 | £0 |
| £250,001 |
£7,500 |
£2,500 | -£5,000 |
That is why it was always a quirky tax before today (and quirky on these sorts of figures is not endearing).
Is this a good thing then?
If, like 98% of people, you wish to buy a house for less than £937,500 then yes it is a very good thing as you will save huge amounts of money.
If you are in the remaining 2% you may not be so happy, particularly as you go higher and higher into the millions. Although, this is only on buying houses so existing mansion owners can breathe a sigh of relief that there isn't an annual "you own an nice house tax" that has been banded about of late.
Buy! Buy! Buy!
