what does the new stamp duty mean for you?

It doesn’t happen often that you post something and have to write a new article on the same topic immediately. However the recent news about the stamp duty change is the reason I have to do it. 

Just a couple of days ago I have posted an article explaining stamp duty. You know what… it is now redundant. The laws relating to stamp duty have changed on Friday, 23rd of September.

This article will highlight the key changes that have happened. I will also give a comparison of what that means for you in terms of actual amount you have to pay today compared to pre rule change.

Spoiler alert – the new stamp duty will make a saving compared to the old one.

how did the stamp duty brackets change?

The great news start here! Anyone looking to buy a property over £125,000 will get a stamp duty saving. The way this was achieved – getting rid of the 2% bracket and turning it into 0% stamp duty.

The image below shows the comparison between old and new stamp duty brackets. 

You were expected to pay 2% stamp duty on the amount between £125,001 and £250,000. This has now been scraped and turned into 0%.

What this means – anyone looking to buy a property over £250,001 will be saving themselves £2,500 in stamp duty tax.

If your property is worth between £125,001 and £250,000 then the following applies. Subtract £125,000 from the value of your property and multiply it by 2%.

For example – if your property is worth £175,000. The value you would previously be expected to pay tax on was £50,000. The tax would be equal to £1,000. With the new stamp duty system – you pay nothing.

There are no changes to the brackets over the value of £250,001. However good news are – all properties above this value benefit from the £2,500 stamp duty tax reduction.

what’s new for first time buyers?

There are some good news for you here as well! Looking to buy your first home? This can be very expensive so stamp duty cuts will definitely be seen as a positive.

Firstly, the value of your first home that doesn’t require any stamp duty has been increased. If the value of your first home is below £425,000 – there is no tax to pay here at all. This is a massive increase from the previous £300,000.

The above change would save someone looking to buy a property at £425,000 a whopping £6,250 in tax vs the previous scheme. This is a value you will gladly put into renovating your new property. 

The alternative you can do to this – use that money to start investing. £6,250 can be an amazing amount to start your investing journey with.

Secondly, the value of your first home can be up to £625,000 in order to save yourself the above amount in tax.

The above is a significant change and a sizeable saving a first time buyer can get.

There is one thing to keep in mind though. If the value of your first home is above £625,000 – the standard stamp duty brackets apply to you.

what about shared ownership?

The principles here stay the same as they were previously. You can either pay the full stamp duty straight away. The alternative is to pay it at later date when your ownership of the property goes above 80%.

The biggest change is – if this is your first home, the first time buyer savings from the above apply to you. This way you can really make your first home significantly more affordable that it was previously.

In order to get the best possible advice that will apply to you personally – speak to solicitor who is dealing with the transfer of your property. They will be in the best possible place to give you tailored advice on what rules apply to you and how you could save some cash.

Understand your options and make a decisions based on what your future plans are with regards to the property. Pay stamp duty early if you want to staircase all the way. Alternatively, defer paying it if you are planning to buy a different property outright in the future.

can I claim back stamp duty I have recently paid?

The sad news here are – unfortunately not. The new stamp duty came into effect as of Friday, 23rd of September. This is the date the reduced stamp duty payments will be collected from.

However, the above will be a nice surprise for those of you who are about to complete on their purchase. You would know how much stamp duty you were expected to pay before the change. Now, you will actually be able to see the difference in your bank account after you speak to your solicitor.

Be wise with the money above. Treat it in the same way as if it was already spent and invest instead. If investing isn’t for you – overpay your outstanding mortgage balance. As mortgages are becoming increasingly expensive – having a smaller balance on your account is not the worst of the ideas.

summary

Stamp duty reforms were long due in my view. Property prices went through the roof in the past. People were expected to be paying the same tax as before (or more).

The above on its own is natural. The point that frustrated me the most – the entry level properties for those who struggle the most were getting much more expensive. The 0% stamp duty bracket hasn’t been reviewed and changed in many years.

This in my view was much needed! The reform should make housing more affordable for many.

If in doubt about the above – seek help! Solicitors should be able to explain the above and tell you what exactly applies to you. You can also use stamp duty calculators available online to have a rough idea in terms of size of the tax to expect.