Shocking research by mortgage lender Coventry Building Society has revealed that despite recent stamp duty cuts and changes to the rules, London based home purchasers are paying significantly more stamp duty than any other area of the country. So, what is stamp duty? How is it calculated and why are London properties incurring so much stamp duty? All this and more answered in our blog.
What Is Stamp Duty?
Stamp duty is a tax that buyers a liable to pay to the government when purchasing property or land intended for residential purposes. This tax is charged at different levels depending on the type of buyer, the number of properties, and the value of the property being purchased. In recent years there have been increases and decreases made to stamp duty tax rules.
For example, higher levels of tax have been imposed on people purchasing and owning multiple properties and lower stamp duty tax has been imposed on first time buyers and people purchasing cheaper homes for them to live in. The main reasons for these two changes being that the government wants to of course make more money on taxes. They also want to discourage serial portfolio landlords from snapping up multiple properties, leaving first time buyers and other home purchasers without a property.
A lot of pressure has been put on government ministers and policy makers in recent times to support people purchasing their first homes. As mortgage affordability is tough and so is saving a large enough property, the government has supported first time buyers by removing stamp duty tax in most instances. Potentially saving first time buyers thousands of pounds.
What Are Stamp Duty Rules?
There have been several changes to stamp duty rules over the last few years. Here is a breakdown of how stamp duty is calculated and paid as of March 2023. Stamp duty is calculated based on property price thresholds, the type of buyer you are and the amount of properties you will own at one time.
If you’re a first time buyer, you will pay no stamp duty on properties worth up to £425,000. For properties costing up to £625,000, you won’t pay any stamp duty on the first £425,000. You will then pay stamp duty at a rate of 5% on the remaining amount, up to £200,000. If the property you are buying as a first time buyer is worth over £625,000 you will pay the regular stamp duty rate on the whole value.
How Much Is Stamp Duty?
For non first time buyers, you will pay £0 stamp duty if your residential purchase is less than £250,000. For any purchases above £250,000 for a main residential home, you will be liable to the following stamp duty:
| Property purchase price | Maximum price | Stamp Duty |
|---|---|---|
|
£0 |
£250,000 |
0% |
|
£250,000 |
£925,000 |
5% |
|
£925,000 |
£1,500,000 |
10% |
|
Over £1.5 million |
– |
12% |
Stamp Duty Paid For More Properties
If you own one or more properties and are purchasing another (i.e. expanding your property ownership portfolio) you will be liable to pay extra stamp duty. Here is a breakdown of what that means:
If you’re buying an additional property, you will pay an extra 3% in stamp duty on top of the standard rates we have detailed above. The minimum purchase price for a property to incur the extra stamp duty tax is £40,000.
| Property purchase price | Maximum price | Stamp Duty |
|---|---|---|
|
£0 |
£250,000 |
3% |
|
£250,001 |
£925,000 |
8% |
|
£925,001 |
£1.5 million |
13% |
|
Over £1.5 million |
_ |
15% |
So, if you own a property and are keeping it but purchasing another property at £1,600,000, you will be liable to stamp duty of £151,250. 3% on the £250,000 for the first level of stamp duty tax, which would be £7,500. 8% on the £675,000 difference between £250,000 and £925,000 which would be £54,000 stamp duty liability. 13% on the £575,000 difference between £925,000 and £1.5 million, which would be £74,750. And finally, 15% on the £100,000 difference between £1.5 million and £1.6 million, which would be £100,000.
| Property purchase price | Maximum price | Stamp duty | Amount |
|---|---|---|---|
| £0 | £250,000 | 3% |
£7,500
|
| £250,001 | £925,000 |
8%
|
£54,000
|
| £925,001 | £1.5 million |
13%
|
£74,750
|
| Over £1.5 million | – | 15% |
£15,000
|
Who Pays More Stamp Duty?
With these figures in mind and also the price of property in London, it is quite understandable that London purchasers are paying more property stamp duty than other areas of the country, but the actual figures are staggering. Coventry Building Society announced recently that Londoners are paying up to 47 times the amount that their counterparts in other areas of the country like the East Midlands.
This is mainly due to the way above average house or flat prices in London compared to the rest of the country. In London, the average price of a property is probably about £500,000 to £600,000 with properties in high end areas like Highgate selling for multiple millions. In the east midlands, the average property price is about £250 to £260,000 with more expensive properties selling more rurally in places like Leicestershire.
For a non first time buyer purchasing a £600,000 house or flat in London, you would be liable to £17,500 stamp duty. In the East Midlands, the same purchaser buying a house or flat for £260,000 would pay on £500! 35 times less than the average London purchaser! Another major reason for the disproportionate stamp duty in London compared to the rest of the country is the levels of rental properties. Of course the rental market isn’t solely based in London, but the amount of properties purchased for rental purposes and the value of these properties pushes the stamp duty figures much higher than the East midlands say.
Stamp Duty For Buy To Lets
A landlord purchasing a buy to let property in Leicestershire for £260,000 would pay £8,500. However, a landlord buying a flat in London to let out for £600,000 would pay £35,500. Over 4 times the amount someone in the Midlands would pay.
Speak To A Mortgage Advisor
When purchasing any property, it is always important to speak to a mortgage advisor. When it comes to stamp duty, they will be able to tell you exactly what stamp duty you are liable to pay, if any. They will help you to budget your finances so that you have enough to cover the stamp duty and will be able to guide you through the entire process. Give our team a call today to speak to a mortgage advisor.
