What is stamp duty and how much will it cost?

  • 2014
    10 Jan
  • Published in
    Property
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    2,672

What is stamp duty? How much does it cost and who has to pay out? Find out more with our latest article.

STAMP DUTY WAS REFORMED 4th DECEMBER 2014

THIS ARTICLE IS NOW OUT OF DATE - PLEASE READ NEW STAMP DUTY AND WHAT IT MEANS FOR ME TO LEARN ABOUT THE CHANGES.

After years of hard work I can finally afford to buy!

So, you've spent years diligently saving up a deposit and finally convinced a bank to trust you with a mortgage, but hold on! If the property you're buying is worth over £125,000, (way below the average house price!) then you'll also have to pay out for stamp duty which can be a fatal blow to your dreams of owning your own place. Unbelievable! It's a huge extra cost on top of a huge deposit, solicitors, surveys and other costs.

But what exactly is it?

Stamp duty? What's this?

Stamp duty is a tax you have to pay on land and property transactions, the amount you pay varies according to the value of the property.

Stamp duty is incurred on all properties costing over £125,000 and is payable within 30 days of the effective date, which is usually the day of completion.

Do I really have to pay it?

Pretty much, even if you were to exchange properties where no cash changed hands, each party involved would have to pay stamp duty. It goes to the treasury and makes a huge amount of money at the same time so I wouldn't expect it to be cut any time soon.

The only exception is if a share of the property is transferred in the event of a divorce or separation.

How much do I have to pay?

There are several brackets which sees the rate of duty rise astronomically. Unlike income tax where you only pay the higher rate on the amount over the threshold, stamp duty is paid on the entire value of the property sale. Here are the different thresholds.

Value of property

Percentage of stamp duty due

Amount of stamp duty due

£0 - £125,000 0% £0!
£125,000 - £250,000 1% £1,250 - £2,500
£250,000 - £500,000 3% £7,500 - £15,000
£500,000 - £1,000,000 4% £20,000 - £40,000
£1,000,000 - £2,000,000 5% £50,000 - £100,000
£2,000,000+ 7% £140,000

Average stamp duty cost

So to put it into context, using average house sale prices from The Land Registry of England and Wales for the months December 2012 - December 2013 we've calculated what you would pay in stamp duty.

Type of property

Average Value

Cost of stamp duty

Flat £145,000 At 1% = £1,450
Terraced £217,000 At 1% = £2,170
Semi Detached £247,000 At 1% = £2,470
Detached £352,000 At 3% = £10,560

So you only pop into the much higher 3% bracket if you are buying a detached house. That seems reasonable right?

Average stamp duty in London

Well, there are regional differences and as usual London is off skewing the data so lets take a look at average stamp duties when buying in London.

Type of property

Average Value

Cost of stamp duty

Flat £293,000 At 3% = £8,790
Terraced £572,000 At 4% = £22,880
Semi Detached £665,000 At 4% = £26,600
Detached £867,000 At 4% = £34,680

Seems unfair?

Well it is expensive, very expensive and it does seem that Londoners are getting the raw end of the deal when purchasing average valued properties compared with the rest of the country. More so when you consider that the tax raised goes to the central government rather than City Hall (something Boris Johnson wants changed). Even more so when you hear how people are struggling to join the property ladder.

However, it is a tax like any other so if it is cut additional tax will have to be raised elsewhere so best to not get angry and just accept it like income tax. It will be a hefty sum no matter where in the country you live so make sure you add it to your calculations when looking for a home to buy.

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