Stamp Duty on Houses Explained
Stamp Duty is a type of Land Tax, and it is charged on property purchases in the UK (and also on land purchases - being a site for first time property buyers, we'll look purely at how it impacts on property purchases.The tax is applied at a range of different rates, and these depend essentially on the value of the property that is being purchased, as well as for different types of property - here we will focus purely on standard residential property. However note that if you are looking at other sorts of purchases, such as non-residential use of a property, then things may differ, and also there is a difference between freehold and leasehold property.
In addition, there is relief available for certain categories of purchasers for certain types of property, so there are a few things to consider.
This table outlines (at time of writing: January 2012) how the tax rate changes:
| Purchase price | Tax rate |
| Up to £125,000 | 0% |
| ... to £250,000 | 1% |
| ... to £500,000 | 3% |
| ... to £1,000,000 | 4% |
Stamp Duty For First Time Buyers
Now here is the good news for first-time buyers. If you look at the table above, you'll see that a property between £125,000 to £250,000 ordinary incurs a stamp duty tax of 1% the value of the property - so for a £200,000 house that is an extra £2,000 you would need to stump up.However, IF you are a first-time buyer, then there is ZERO tax to pay on purchases up to £250,000: this threshold is known to apply up to 24 March 2012 whereupon things may change. This policy is there because it is recognised that first-time buyers face enough hurdles as it is to get on the property ladder, and therefore that extra amount could tip them over the edge of not being able to afford home ownership.
Bear in mind that if you live in a really, really pricey area such as central London, then unfortunately purchases above that £250,000 are still at the standard rate of 3%.
Stamp duty rates also explain pricing - you may be surprised to look at property listings and see lots clustered at, say, £249,950 and then there is a jump up to properties at £275,000+ ... the reason many do this is because of the stamp duty leap from 1% to 3% when moving above the £250,000 threshold, and since 3% of £250,000 is £7,500 then clearly properties priced just over the threshold are very unattractive purchases!