If there’s one thing that’s likely to rain on your parade when you’re going through the house buying process, it’s stamp duty.

You find the perfect home, everything seems to be within budget… and then your mortgage advisor reminds you of the tax bill you’ll be hit with for buying a new home.

Well, good news: thanks to the big ‘C’, chancellor Rishi Sunak has decided to remove stamp duty entirely for all home purchases up to £500,000 until the end of March 2021 (apart from second homes – see below!).

This is prompting lots of buyers to bring their plans forward, and if you’re in that position, we’ve got everything you need to know about the stamp duty changes.

Firstly – what is stamp duty?

Stamp duty is a tax you have to pay if you’re buying a residential property in England or Northern Ireland (it is a different scheme in Wales and Scotland).

It’s based on a percentage of the purchasing price and typically increases depending on the price of the home you’re buying. If you’re purchasing a second home, there’ll be additional stamp duty to pay there, too.

This year, though, things are a bit different.

How much stamp duty will I pay?

It bears repeating: if you’re buying a home before 31st March 2021, and it costs less than £500,000, you’ll pay zero stamp duty assuming it is not a second home.

Rishi Sunak has set the new, temporary stamp duty thresholds as follows:

  • £0 – £500,000: 0%
  • £500,001 – £925,000: 5%
  • £925,001 – £1.5 million: 10%
  • Over £1.5 million: 12%

It’s important to note that the stamp duty rate only applies to the part of the property’s price which falls into each band.

For instance, if you’re buying a home that costs £575,000, you won’t pay 5% on the entire price – you’ll simply pay it on the additional £75,000 (i.e. £3,750).

So, you essentially get £500,000 of any home purchase completely tax free. Nice!

Just make sure you complete the purchase of your property before 31st March 2021 to qualify for these new stamp duty rates. If you made any purchases prior to the chancellor’s announcement on 8th July, you’ll still unfortunately pay the old rates.

If you want to have a look at specific figures, we find this site useful, just put in the purchase price under single property or additional property (give us a call if you are unsure which one it will be for you) – Stamp Duty Calculator

What about second homes?

If you’re looking to buy a second property before March next year (for instance, a rental property), you’ll still have to pay the 3% extra stamp duty on top of the revised rates above.

This applies to properties bought for £40,000 or more, but doesn’t apply to mobile homes, caravans, or houseboats.

It’s worth bearing in mind that if you buy a new property and there’s a delay in selling your current home, you’ll technically own two properties. This means you’ll still have to pay the higher stamp duty rates.

However – there’s good news. If you sell that previous home within three years of buying your new place, this article from HMRC suggest you can apply for a refund of the higher rate stamp duty. Please seek specialist tax advice if you want to know more.

Can stamp duty be avoided or reduced?

Sometimes. If you’re spending more than £500,000 before March next year, there are a couple of instances where you can get the stamp duty reduced or avoid it entirely:

  • you’re slightly over the rate band: some vendors and estate agents will move on their prices to help you out in such instances – it’s certainly worth asking;
  • you’re transferring the property as part of a separation or divorce: there’ll be no stamp duty to pay if you transfer a proportion of the home’s value to your ex partner.

Have questions?

Just ask the Gough Mortgage team!

We’ve got to grips with the new guidance and we know this stuff like the backs of our hands, so get in touch if you are thinking of bring forward your plan to move house – it’s a great time to do so!

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