Homebuyers will be given a helping hand onto the property ladder from today under new stamp duty reforms.
As part of his Autumn Statement, Chancellor of the Exchequer George Osborne announced changes to the rates of tax applied to property purchases.
Click below to watch George Osborne outline stamp duty reforms
The chancellor said the new system will result in savings for 98 per cent of homebuyers.
Here's everything you need to know about the changes:
What is Stamp Duty?
Stamp Duty Land Tax (SLDT) is a tax you must pay if you buy a property in the UK over a certain price. It is charged on all purchases of houses, flats, land and buildings.
Which houses does it apply to?
It applies to property purchases of £125,001 and above. Up to £125,000, there is no Stamp Duty to pay.
What was wrong with the old system?
Under the old system, stamp duty applied for purchases over £125,000, with a 1% rate charged for properties up to £250,000. Properties worth more than £250,000 had a 3 per cent rate, up to £500,000, where the rate jumped again to 4 percent up to £1 million, 5 per cent up to £2 million and a 7 per cent tax was due for properties worth more than £2 million.
But homebuyers purchasing a property for a cost on the threshold of a stamp duty band could see the tax rise unexpectedly — for example, someone buying a house of £250,000 would pay £2,500 (1 per cent) stamp duty. But if the house cost £250,001, the stamp duty rate would jump to 3 per cent, costing them £5,000 more.
From today (Thursday), the new stamp duty rate will only apply to the amount of the purchase price that falls within the stamp duty band. For example, someone buying a house for £200,000 will pay no stamp duty on the first £125,000, then 2 per cent of the remaining £75,000 — £1,500 in stamp duty.
The new system follows a graduated tax rate, similar to how income tax is calculated.
Stamp Duty will worked out with the following rates:
Stamp Duty rate
|Over £1.5 million||12%|
Will it be cheaper for homebuyers?
Under the old rules, someone buying a house for £200,000 would have paid one per cent stamp duty on the whole purchase price — £2,000. George Osborne has said that the new system will cut stamp duty for 98 per cent of homebuyers.
We've just exchanged contracts. How does this affect us?
Where contracts have been exchanged on or before December 3, 2014, and the transaction is completed on December 4 or later, you can choose whether you follow the new or the old rules.
Buying a house? See if the changes will affect you with our stamp duty calculator: