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.
Comments
If I purchased a property at £160000 I would expect to pay Stamp Duty at 1% but in my case I purchased a 50% share for cash and pay rent on the balance to an housing association.
As I bought for £80000 did I have to pay any tax at all?
Regards
Tony
Posted by: A J EVANS | May 13, 2008 12:49 PM
Please send me any useful further information please about first time buyers in Kent, especially Canterbury in Kent as I might think about sorting out a mortgage sometime in the future. I currently live in Folkestone in Kent but if I do decide to take on a mortgage, it will probably be in Canterbury in Kent instead of Folkestone. So any small houses that come up in that area with one or two bedrooms would be very useful to be informed of please. I do not wish to take on a really expensive place but I would be interested in a moderately priced house to keep me safe and warm in my old age. I look forward to your updates in this area? Thank you. Sincerely Yours Miss Emma L Jones.
Posted by: Miss Emma Lucy Jones | May 13, 2008 10:14 PM
Great post
Posted by: sell property online | May 21, 2008 12:31 PM
Very useful information.
Posted by: Buy new land | June 3, 2008 08:34 AM
If I am purchasing houses at the bottom and the middle of my property chain, could I legally negotiate a large discount from each house price in the chain between my purchases? This would be a zero net gain for each person in the chain, since they would need to pass on the discount further down until it reached me again. However, this would significantly reduce the stamp duty for each person, especially for those where the price drops them below one of the thresholds.
Posted by: G Brown | June 3, 2008 02:17 PM
Hi Graham, It sounds like some creative thinking has been going on here! My immediate thoughts are as to whether such an arrangement would be classified as associated transactions for HMRC stamp duty purposes and whether a contract for fair value is required. In either event this is worth following up and I suggest that you consult either a solicitor or accountant who should be able to advise on what are essentially legal and financial details
Posted by: Nick Leeming from propertyfinder.com | June 5, 2008 02:35 PM