75 per cent of first-time buyers benefitting from stamp duty cut

Tips and Advice

Stamp duty may rank just behind inheritance tax in terms of controversy and dislike. The bad news is that, just like inheritance tax, the contribution it makes to the UK’s coffers means that it is highly unlikely any government will cancel it completely any time soon. The good news is that the government has, at least, taken steps to mitigate its impact on first-time buyers, who are the life-blood of the housing market.

A brief guide to stamp duty

Since 2014, stamp duty has been calculated in the same way as income tax, which is to say that there is a banding structure in place and each portion of the overall price is charged the appropriate level of tax. At current time, the bands are as follows:

Bands verses Rate

  • £0-£125,000… 0%
  • £125,001-£250k… 2%
  • £250,001-£925k… 5%
  • £925,001-£1.5m… 10%
  • £1.5m+… 12%

So, for example, on a property costing £325K, you would pay nothing on the first £125K, 2% on the next £125K and 5% on the final £125K for a total of £6.25K. That calculation assumes, however, that you are neither a first-time buyer nor an investor. If you are a first-time buyer, the bands are as follows:

Bands verses Rate

  • £0-£500K… 0%
  • £500,001+… 5%

For completeness, if you are an investor, the bands are as follows:

Bands verses Rate

  • £0-£40K… 0%
  • £40,001-£125,000… 3%         
  • £125,001 – £250,000… 5%         
  • £250,001 – £925,000… 8%
  • £925,001 – £1.5m… 13%
  • over £1.5m… 15%

The stamp duty cut for first-time buyers has helped a lot of people – but not equally

As can be seen from the above bands, stamp duty is levied as a percentage of the purchase price, which, obviously, means that the more you pay for the property, the more you pay to the government. Given that the highest property prices in the UK (by far) are in the Thames Valley area, especially London, it is hardly a surprise that buyers in the south east have long been generous (if unwilling) donors to HMRC.

Hence, although the headline figures indicate that 75% of first-time buyers have benefitted from this change, most of the benefit has been felt in London and the South (East). For example, in the North East, only 39% of first-time buyers saved anything at all thanks to the stamp duty cut and those who did benefited only did so to the tune of about £1 million or about 1% of the overall loss to the treasury. By contrast, in the South East no less than 93% of first-time buyers made savings and these savings amounted to about £106M or about 25% of the overall loss to the treasury.

Prospects for the future

While the stamp duty cut was announced as a permanent change, what that means in practical terms is that it will stay in place for as long as the government sees a justification for it. That being so, prospective buyers could be well advised to take advantage of it while they can, especially if they wish to buy in London and the south, where a slow market could offer the prospect of excellent bargains.

Author Bio
Hopwood House are specialists in property investment, with a wide range of investment property for sale throughout the UK in the buy-to-let, student property and hotel room investment markets.

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