 Buying a new home is often an incredibly stressful experience and the main reason for this is the amount of additional fees and costs that buyers don't take into consideration before purchase. As with nearly all things in life, buying a house also involves paying a tax, in this case called stamp duty. This tax will vary depending on the value of the property and it is essential to prepare adequately for how much you will end up paying.
The government has been under intense pressure to to raise the threshold before which people begin paying the duty. Back in 2005 the chancellor announced that only houses above £125,000 would be liable. This though was in the middle of the highest house price cycle for decades and was roundly castigated from all sides as being woefully inadequate.
Now the base rate before you begin paying stamp duty is £175,000 but even this is seen as too little, too late with the average house price being nearer to £185,000. This is especially true in London and the South-East, where even a two bedroom apartment can cost well in excess of £200,000 in some areas.
The Hard Facts
The current government thresholds for stamp duty are worked out according to the formula below. The pound figure is the value of the property and the percentage is the amount of tax to be paid.
£0 - £175,000 0%
£175,001 - £250,000 1%
£250,001 - £500,000 3%
£500,001 or more 4%
Exemptions
You can see from this that paying even marginally over £250k will increase the tax three times. For example, if you bought a property for £260k would be paying £7,800, whereas a property costing £240,000 would only set you back £2,400.
Up until last month the government made exemptions for houses bought in 'disadvantaged areas' which included a number of poorer areas within major cities such as King's Cross in London. The old system allowed purchases under £150,000 in these areas exemption but with the across the board increases the system was phased out.
The other way that buyers could avoid paying stamp duty is to buy a 'zero carbon' house. This rule, which is meant to stimulate growth in the environmentally-conscious housing sector still applies but very few houses at present would be able to claim this exemption.
A 'zero carbon' house is measured on three factors currently including overall heat loss, Dwelling CO2 emission rate (DER) and net CO2 emission rate. If the property passes these standards then no stamp duty will be paid up to a value of £500,000 and any property above that value will receive a £15,000 discount.
Although the government laid out plans for every new home to be zero carbon within 10 years this is looking very unlikely and the chances of finding a carbon neutral house on the market at the moment are exceedingly slim.
Paying the Price
Because of changes to the law back in 2003 it isn't possible to save money by exchanging properties, which was a common practice previously. The only current way to lower your burden is called 'apportioning' and involves the seller agreeing to sell some of the fixtures and fittings separately thus enabling the actual house transaction to dip below the band. It is absolutely essential that the fixtures are actually apportioned at their real value though because otherwise you could both be liable to pay back the taxes and may even be fined.
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