Stamp duty – what’s the impact on buyers?

In this week’s Autumn Statement, George Osborne changed the stamp duty rules, effectively making it better for those buying cheaper houses and bad for people buying a property costing more than £925,000, and even worse if your house costs in excess of £1.5 million. For the majority of home buyers, the new arrangement is good news.

Before, it was a much-criticized cliff-edge arrangement where the buyer had to pay stamp duty on the full value of the property when it hit a threshold. Today it is a more proportionate system, and only levies tax on the amount above the threshold.

The new Stamp Duty rates are:

Stamp duty land tax (SDLT) rates are levied on the following purchase prices of properties:

£0 – £125,000: SDLT 0%.

£125,001 – £250,000: SDLT 2%.

£250,001 – £925,000: SDLT 5%.

£925,001 – £1.5m: SDLT 10%.

More than £1.5m: SDLT 12%.

Stamp duty UK

The new stamp duty arrangement favors lower-end buyers and hits rich people.

So, if you buy a house for £500,000, there is no stamp duty on the first £125,000, two percent on the next £124,999 (£125,001 to £250,000 at 2%), and 5% on the rest. Compared to the old system, you would be saving a lot of money.

First-time buyers, who tend to buy cheaper homes, will benefit the most. According to Yorkshire Building Society, 18% of first time buyers say their second-largest cost challenge linked to buying a home is stamp duty, after coming up with the deposit down-payment (51%). For non-first-time buyers the percentage increases to 28%.

All major mortgage lenders in the UK have responded positively to Mr. Osborne’s stamp duty reforms. They will help first-time buyers by lightening the burden of upfront costs when trying to get onto the housing ladder.

Before-and-After comparison

Let’s compare the tax burden on a £200,000 house. Today you would pay 2% stamp duty on the £75,000 above the tax-free threshold, which equals £1,500. Before, you would have paid 1% on the whole amount, i.e. £2,000. So, today you would save £500. Those buying more expensive properties (but not super expensive ones) would save even more.

However, the new system clobbers people buying super-expensive properties. If you buy a £2.1 million house today, your stamp duty will be £165,750 compared to £147,000 before.

According to Mr. Osborne, 98% of home buyers in the UK will be financially better off with the new system. Most analysts agree that most people will be better off.

Video – Reaction to Stamp Duty reform

Martin Lewis, a money-saving expert, gives his instant reaction to George Osborne’s Autumn Statement. In this Telegraph video, he welcomes the Chancellor’s stamp duty overhaul.