Q & A: Stamp Duty
Property expert Nicholas Leeming of propertyfinder.com answers your questions on stamp duty:
Why do we pay stamp duty?
Stamp duty is the oldest tax administered by the Inland Revenue and was introduced in 1694 to pay for the war against France. The tax was extended to property sales in 1808 and its sole purpose now is to generate revenues for the government.
How much is stamp duty?
Stamp duty used to be levied at 1% on the sale price of a property above a basic threshold. In July 1997 Gordon Brown increased the tax to 1.5% on properties between £250,000 and £500,000. There have been a number of subsequent changes and the current rates are shown below:
Purchase price of residential property Rate of Stamp Duty Land Tax (% of the total purchase price)
£0 - £125,000 0%
£125,001 - £250,000 1%
£250,001 - £500,000 3%
£500,001 or more 4%
What is the result of the tax?
The tax take for HMRC in 2007/8 will be around £6,863m with an average bill for each property sold of £4,950 this tax year. The comparable figure 10 years ago was £709 representing an increase of nearly 600%. In London the affect is even worse with average stamp duty paid on a property reaching £12,409. Three London boroughs alone paid more stamp duty last year than Scotland, Wales and Northern Ireland combined! Today’s first time buyers will pay around £20,000 in stamp duty over their lifetime.
Is it possible to reduce or avoid stamp duty?
The most common way of avoiding stamp duty was to attribute a high percentage of the agreed sale price to the fixtures and fittings so as to reduce the value of the property to below the threshold for stamp duty. While this could create worthwhile savings, this practice has now been stopped and there are now no effective ways of avoiding the tax.
