how to know the stamp duty for residential property

One of the biggest fees to consider when buying a property is stamp duty. This is a tax that needs to be paid at every purchase. The value of this can vary significantly. This will depend on the price of the property you are buying.

There are however other factors that impact how much you end up paying. There are for example different brackets for first time buyers. Shared ownership properties can also have a different structure to how the stamp duty is paid.

Below I will review these different situations so you have a better understanding of how much cash to put aside for this before you are looking to buy a property.

stamp duty brackets

Stamp duty has a progressive system. This is similar to your salary. There is no stamp duty to be paid on the first £125,000. It then starts to increase in predefined brackets.

The image below gives an easy to understand breakdown of the brackets.

To give you an example of what this might look like in real life for someone looking to buy a property worth £350,000. 

You wouldn’t have to pay a penny on the first £125,000 – this is stamp duty exempt value. 

Next, you would have to pay 2% on the value between £125,001 and £250,000. The stamp duty for this part would equal £2,500.

Last part – the value that is above £250,001. In the case of property worth £350,000 – there is a total of £100,000 falling into the 5% bracket. Stamp duty on this would be a further £5,000.

Adding all the values above gets us to a total stamp duty to be paid of £7,500.

You can see how the above can very quickly add up to a very big lump of cash that would be need to be paid when buying a property. This is something that you definitely need to be prepared for before buying your home.

stamp duty and shared ownership

When it comes to shared ownership – the principles of the brackets remain the same however you have few options in terms of how to pay the tax.

Firstly, if you are a first time buyer and getting a shared ownership – the first £300,000 of a home costing up to £500,000 is stamp duty exempt. This is in place to make the costs of buying more affordable for those on lower income.

The rest of the structure of the stamp duty stays pretty much the same. There is however a further thing for you to know.

You can decide if you want to pay the stamp duty in full when buying the property or pay it at later date. There are pros and cons to both of these. You will have to be the one to decide which one works the best for you. Your solicitor might be able to give advice on this as well.

If you are looking to buy the property and eventually buy it outright through staircasing – the option with paying stamp duty straight away might be a cheaper solution.

Let’s say you are buying 50% of the property today and plan to staircase to 100% in the next 10 years. In this case, you wouldn’t pay any stamp duty (if the value is below the threshold) at the purchase. Instead, you would have to pay it when you get to 80% of the property ownership.

The issue here however is the fact that your home will be worth more in 10 years time that it is currently worth. As a result, you will have to pay a higher amount of stamp duty. This is obviously only true if the rules and criteria for stamp duty do not change in the next 10 years.

Paying it at later date can be a good option for someone who is looking to live there for a period of time and then sell and buy a different property outright. This way you don’t have to pay any stamp duty on your shared ownership home. You can save yourself a decent amount of cash that can be used for your next home.

first time buyers

As a first time buyer there are different rules no mater if you buy a shared ownership or a full property. This can save you up to £5,000 if the value of the property you are buying is below £500,000.

Any property that costs below £300,000 – will have no stamp duty for a first time buyer. The difference between £300,000 and £500,000 will be taxed at 5%.

If the value of the property is above £500,000 you revert back to the normal brackets in the image above.

This scheme is there to make the expensive process of buying your first home slightly more affordable.

One thing to consider, if you are looking to benefit from the first time buyer bonus but the property is slightly above the £500,000 – explain this to the seller and put an offer in. You don’t lose anything in case they reject your offer.

summary

When it comes to buying a property – there is a lot of fees to consider. Stamp duty can easily become one of the most expensive on the list. You can find a list of fees to plan for before buying that I put together.

I hope the above made stamp duty easier for you to understand. The amount you might need to pay can be slightly tricky to figure out.

There are few things I would encourage you to do before buying. Firstly, there are many stamp duty calculators that can help. One of these can be found here.

Secondly, talk to your solicitor about this. They should be able to help you understand it and plan for how much cash you might need for this.

Try to get an advice – what can be done to reduce the bill that you have to pay. There is no harm in asking for help. Simple things, like being aware of £500,000 limit as a first time buyer can save you £5,000 straight away.