The Office of National Statistics (ONS) has confirmed that the average house prices will bring higher stamp duty to thousands.
As the price of the average home exceeds £250,000 it means the cost of stamp duty will rise from 1% for a property just below this level to 3% from this level upwards.
The ONS have said house prices are on average 5.5% higher throughout the UK, pushed higher due to London property prices rising by 12.3% to December.
House prices in the capital are likely to rise to the benefit of existing homeowners such as remortgage buyers or allowing equity release buyers to access money from their homes.
Stamp duty rates
In the UK stamp duty bands are applied as follows and you can check the stamp duty you would pay to purchase your home using the LCM first time buyer calculator:
| Property value | Standard rate |
|---|---|
| Up to £125,000 | 0% |
| £125,000 – £250,000 | 1% |
| £250,000 – £500,000 | 3% |
| £500,000 – £1.0m | 4% |
| £1.0m – £2.0m | 5% |
| over £2.0m | 7% |
As a comparison a property selling for £249,000 would cost £2,490 and a property selling for £251,000 would cost £7,520.
To avoid a higher tax band first time buyers would not want to pay slightly more than 250,000 and a home mover would be pressured to reduce the price to this level.
For the tax year 2012/13 the Treasury received £4.9 billion from residential stamp duty and this is expected to increase to £14 billion by 2020 with rises in property prices.
Criticism of the current system
There are many critics of the stamp duty system and industry groups are lobbying for this to be changed to a marginal tax basis.
This could use the current bands but instead of the sudden jump at each band, there would be a gradual increase.
For example, a £280,000 home would pay no duty on the first £125,000, 1% between £125,000 to £250,000 and 3% above £250,000 reducing the stamp duty to £2,150 compared to £8,400.
Some MPs have proposed scrapping stamp duty below £500,000 or to apply the duty on sellers rather than buyers.
Stamp duty is not a concern to existing homeowners such as remortgage buyers or equity release mortgage buyers as they can access cash from their homes rather than move.
Others have argued the tax restricts labour mobility creating unemployment and distorts the property market by creating price distortions as some properties are priced lower or much higher than the next band level.
What are your next steps?
Speak to our LCM mortgage advisers if you are planning to move home, buying your first home, remortgaging your existing home to a new cost effective mortgage deal or are a buy-to-let investor.
For equity release buyers our London City Mortgage brokers can recommend lifetime mortgages allowing you to receive cash from your property to help maintain your standard of living as costs rise or even help your children start or expand a business.
Learn more by using the mortgage cost calculators, equity release mortgage calculator and property value tracker chart. Start with a free mortgage quote or call us and we can take your details.
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