If you are buying a house after the 3rd of December 2014, chances are you will be paying a lot less in Stamp Duty, thanks to George Osborne's surprise announcement today. Stamp Duty will see a total revamp. The old flat rate system has been replaced by a gradually increasing tax, tied to the increasing value of the property. Those who will gain from the new changes are basically anyone buying a house for less than £930,000.
Up until now, once you went over a threshold, you paid tax on the whole purchase price at that higher rate of tax. For example, on a £260,000 home, you paid 3% on the whole price = £7,800. Regardless of the fact that the rate from £125,001 to £250,000 was 1%, and only increased to 3% after the value went over £250,001.
The new system uses thresholds, rather like the PAYE tax system, to establish how much stamp duty is owing. The first £125,000 paid for a house has no tax owing on it. Once you go over that £125,000 threshold, you pay tax at a rate of 2% on the amount above £125,000, up to £250,000, and so on. So for the same example as used above, a property valued at £26,000, there is no tax up to £125,000, it's 2% from £125,001 to £250,000, 5% from £250,001 to £260,000. The total Stamp Duty owing under the new system is £3,000. This means a saving of £4,800. See the table below for a better idea of the savings to be had under the new system.
New Stamp Duty Tax Bands and Rates
|Property Value Bands||Rate of Tax charged|
|£0 - £125,000||0%|
|£250,000 - £925,000||5%|
|£925,000- £1.5 million||10%|
|£1.5 million +||12%|
Old v New Stamp Duty System- Comparison of How Much Tax Due
|House Value||Old System||New System|
The new Stamp Duty system will be in place throughout the UK from the 4th of December 2014. There may be changes to the thresholds and rates in Scotland after April 1st though.