Duty calls – put your stamp on a property

It’s no secret that the property market has been stagnant for a number of years.

Duty calls – put your stamp on a property

It’s no secret that the property market has been stagnant for a number of years. When house prices were at their historical peak in late summer 2007, the average cost of a UK property was riding high at a whisker under £200,000, according to the Halifax monthly index; it’s around 19 per cent less than this now. And due to inflation eroding the value of the pound in our pockets, a recent report by RICS, the Royal Institution of Chartered Surveyors, suggested that up to a third of UK houses’ real value could have been wiped off since this 2007 peak.

Of course, there are always differing opinions on the true state of the housing market, but with the traditional spring influx of properties onto the market – and as potential sellers spruce up their homes, ready to show them off to their best advantage in the warmer months – it could be time for potential buyers to refresh their memories of how the stamp duty system works.

Stamp collecting

The new Stamp Duty Land Tax (SDLT) was brought in at the end of 2003, and is a tax on property and land transactions. These are divided up into bands, so you will pay proportionally more tax as the value of your purchase increases.

For the financial year 2012-13, those purchasing a residential property up to £125,000 pay nothing in stamp duty, while those paying £125,001-£250,000 pay 1 per cent - in other words, a house selling for £200,000 would trigger an additional £2,000 in stamp duty. Between £250,001 and £500,000, stamp duty of 3 per cent is payable; for purchases costing £500,001-£1 million it is 4 per cent. After that, there is a rate of 5 per cent on transactions from £1 million to £2m and 7 per cent on £2m plus.

All of these bands remain the same as in the previous tax year – although first-time buyers were treated as a special case between 25 March 2010 and 25 March 2012, enjoying a tax ‘holiday’, paying nothing in stamp duty for properties up to £250,000. However, the recent announcements in the Budget have shaken up the system at the very top end. While there was previously a flat rate on all sales over £1 million, there is now a 7 per cent tax on all properties selling for more than £2 million. Further to this, in a bid to close down a tax loophole, any £2 million-plus residential properties bought through a company will now automatically attract 15 per cent stamp duty.

These changes have been designed to clamp down on people trying to avoid paying tax. However, one thing to bear in mind is that stamp duty is not payable on fixtures and fittings. This is a good thing for a buyer, because if your new home comes with a washing machine, you can subtract the value of this from the overall bill before calculating your stamp duty. Just remember that subtracting an unrealistic amount of money from the purchase price – in an attempt to trick the stamp duty system by falling into an artificially lower band – is likely to incur scrutiny from HMRC.

Finally, there is some help for buyers in areas which have been designated as ‘disadvantaged’. In these – which are identifiable using a postcode search tool on the HM Revenue and Customs website – the threshold at which you begin to pay rises from the usual £125,001 to £150,001.

Of course, the only real housing market situation that matters is down at the personal level; those decisions that individual families make about the right time to make a new home for themselves. And while this can all add up to a significant cost when moving – above and beyond the headline cost of buying the property itself – having made tax-efficient savings through ISA accounts could be a real help at this time. If you are interested, remember to check your ISA allowance 2012 and 2012 cash ISA rates in order to get a better understanding of what you could save.

This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.

Barclays is a major global financial services provider engaged in retail banking (bank accounts and instant access savings accounts), credit cards, corporate banking, investment banking, wealth management and investment management services, with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 140,000 people. Barclays moves, invests and protects money and provides ISAs, home insurance, life insurance, a mortgage calculator, guides on how to buy shares and other services for over 49 million customers and clients worldwide.For further information about Barclays, please visit our website www.barclays.co.uk.