One of the biggest costs in home buying is stamp duty (Stamp Duty Land Tax) – a property tax that the buyer pays on the agreed purchase price. The amount you pay depends on the various tax thresholds that your property exceeds.
The tax bands start at £125,000, so you pay no stamp duty if the purchase price is less than this. The bands then gradually increase. The next £125,000 (for properties priced between £125,001 and £250,000) is charged at 2% of the purchase price. Then the next £675,000 (between £250,001 and £925,000) is taxed at 5%. Most properties will fall into these brackets.
However, if you are buying a more expensive property, you need to be aware of the two further bands. There is one at 10% on the next £575,000 (between £925,001 and £1.5m) and another at 12% on anything above £1.5m.
Calculate the tax due on each portion separately and then add them together. For example, someone buying a home for £1m will pay nothing on the first £125,000, then 2% on the next £125,000, 5% on £675,000 and 10% on the final £75,000. The final bill tax bill will be £43,750.
The rates apply only for those buying in England, Wales and Northern Ireland. The Land and Buildings Transaction Tax has replaced stamp duty in Scotland (https://www.revenue.scot/land-buildings-transaction-tax).
A recent change in the rules means that overseas investors (or strictly speaking, any non UK residents) may now have to pay capital gains tax (CGT) when a residential property is sold. The rules are complicated. Essentially, a tax charge of 18% for basic-rate taxpayers (with UK income of less than £42,385 in the 2015/16 tax year) or 28% for higher and top-rate taxpayers (earning above £42,385) could apply on properties sold after 5 April 2015.
However, the tax will typically only apply on the increase in value after this date. Various conditions, reliefs and allowances could have an impact on the amount of CGT you ultimately owe.
Also, you only need to pay CGT on your total taxable gains that are above your annual allowance, which is currently £11,100. For help and further guidance, visit the gov.uk website or seek financial advice.
Another tax you should be aware of is the Annual Tax on Enveloped Dwellings (ATED). However, it applies only to residential properties owned by a company or a partnership with a corporate member. It does not apply to those held directly by individuals.
There are five bands of this tax. It kicks in when the value of a house surpasses £1m. The annual chargeable amount between 1 April 2015 and 31 March 2016, for a property worth £1m-£2m is £7,000, while those worth £2m-£5m incur a charge of £23,350. The highest band is for properties worth over £20m, which carry a £218,200 charge. From 1 April 2016, a further band will be introduced for homes between £500,000 and £1m, with an annual charge of £3,500.