I’m thinking of moving house shortly, and I’m currently trying to work out the costs. What exactly is Stamp Duty all about?
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A. Stamp Duty – or Stamp Duty Land Tax, to give it its full title – is one of the most significant costs associated with buying and selling property. Unlike agency fees, however, which are generally paid by the seller, Stamp Duty is paid by the buyer. Precisely why the person who has just forked out hundreds of thousands of pounds to purchase something – as opposed to the seller, who has presumably just made a tidy profit on the transaction -- should also be obliged to pay thousands more to the Government, is just one of the peculiarities of a tax that most people agree is in urgent need of a radical overhaul.
Stamp Duty is levied at different rates, based on the value of the property concerned – as follows:
• Up to £125,000 – 0%
• £125,001-£250,000 – 1%
• £250,001-£500,000 – 3%
• £500,001-£1million – 4%
• Anything over £1million – 5%
Currently, as a temporary concession, first time buyers only are exempt from Stamp Duty on any purchase up to £250,000. However, as always, terms and conditions apply – not least, the fact that the buyer must be able to show that he or she has never previously owned a property anywhere in the world! There are other situations where exemptions also apply – including properties in areas that the Government considers to be disadvantaged and, of course, so-called “zero carbon” homes.
As thing stand, however, the entire Stamp Duty regime is deeply flawed. With the exception of the 5% rate, which was only introduced in April this year, none of the higher-rate thresholds have been increased since 1997, despite average house prices having rocketed by the best part of 200% since then. Consequently, the thresholds are now ludicrously out of line with current property values.
However, arguably an even bigger problem is the fact that once a threshold has been passed, Stamp Duty is levied on the full purchase price, and not just on the extra amount. Needless to say, this can have a significant distorting effect on property prices close to the thresholds.
So, will this or any other Government grasp the nettle and institute a root and branch reform of SDLT? Sadly, in these cash-strapped times, I wouldn’t hold your breath!