When you work within the mortgage industry, you will become familiar with stamp duty, what it is, and when it is applicable. Also referred to as stamp duty land tax (SDLT), it is a tax paid for during the purchase of a property.
It is charged on all houses, land, flats and buildings purchased for above a certain price within the UK. It is applicable on all properties over the price of £125,000, and is another expense that borrowers need to factor in when budgeting ready to purchase their dream home, along with other associated expenses. It is applicable on both leasehold and freehold properties, and even if you are buying the property outright and do not require a mortgage.
If you were buying a property for less than £125,000, then no stamp duty is payable. Previously, a flat rate was applied to the price of the property.
The latter part of 2014 saw the Chancellor announce a reform of stamp duty as part of his autumn statement, and now the rates are applied to each portion of the price at increasing intervals. As of December 2014, the following tiers/rates became applicable:
• £0 – £125,000 = 0%
• 2% on the next £125,000
• 5% on the next £675,000
• 10% on the next £575,000
• 12% on the remainder (everything above £1.5 million)
While the mortgage advisor will make the customer aware of the associated mortgage costs, it is the solicitor who is processing the legal requirements of purchasing a property, and who is responsible for ensuring that the stamp duty funds are paid on time. If this is not achieved, a £100 penalty (plus interest) becomes payable by the person purchasing the property. Stamp duty needs to be paid within 30 days of the property purchase completing.
Some buyers will look at negotiating the purchase price of the property, aiming to bring the price down to a lower level of stamp duty to minimise the costs they will incur as part of the process.
Stamp duty is also not applicable if the homeowner is looking to transfer the deeds of the property to somebody else by way of a gift or through a will. Also if a portion of the property value is to be transferred to a spouse or partner following separation, no stamp duty is applicable.
It is important to note though that if two parties were exchanging properties, then both would pay stamp duty on the market value of the property they were going to be receiving.
