Avoid Unnecessary Stamp Duty
When purchasing a property, not paying Stamp Duty would be ideal and save a significant amount of cash! This can currently happen in most areas if the property is sold for less than a value of 125,000. However, a little know fact is that in some areas this level is higher at 150,000 after HM Revenue & Customs raised the threshold for some 2000 places across the UK.
Property transactions attract Stamp Duty at stepped intervals dependent on the transaction value and if you are a first time buyer or not. For first time buyers no Stamp Duty is paid on property valued up to 250k. Stamp Duty is normally levied at values over 125,000, so for property transactions of between 125,000 and 250,000 a 1% Stamp Duty is levied; for values between 250,001 and 500,000 a 4% duty is levied. For properties over 1 million the Stamp Duty levy increases to 5%.
So if you purchase a property in an exempt area for a transaction value of 150,000 then you will not pay any Stamp Duty giving you a saving of 1,500. If the area you are looking at is not an exempt area and the property transaction value is the same (i.e. 150,000) then the 1% Stamp Duty levied will cost you 1,500 unless you are a first time buyer.
If you are entering the property market for the first time and can class yourself as a first time buyer then as previously mentioned the Stamp Duty levy is slightly different. For first time buyers there is zero Stamp Duty on property valued up to 250k. This lasts until 25th March 2012 and was announced, as an incentive for first time buyers, by Chancellor Osborne in the 2010 budget.
Exempt areas in Scotland are based on postcode areas while in England and Wales exempt areas are based on local electoral wards.
The exempt areas are chosen by using a scale of deprivation. An exempt area is designated as either deprived and/or in need of development as identified by local and central government. To find these areas of the UK then visit the HM Revenue & Customs website (http://www.hmrc.gov.uk/sdlt/reliefs-exemptions/disadvantaged-areas.htm) where you will find PDF lists and a postcode locator to find out if the area you are looking at qualifies for Stamp Duty relief.
As we look across the UK we see that London has the fewest exempt areas with only 13% of all property. As we travel north the percentage of areas and properties that qualify for relief rises with North East England having the largest number of areas that qualify.
Moving further north and crossing the border into Scotland we can see that some areas of Motherwell have up to 89% of properties that could potentially qualify for the exemption. It has to be noted though that as house prices drop then other areas may become more densely populated with eligible housing stock.
OK so finding out to see if the property you are buying falls into the exempt category is a sensible option. Why? Well, we are pretty sure, in the past, buyers have paid Stamp Duty when in fact they are actually in an exempt area and don't have to. Don't let it be you.
Be extra careful with new properties as these postcodes will need to be inputted into the HM Revenue and Customs system, which can cause delays. With nearly 10,000 new postcodes being added to the system every year the lag could cause problems!
Howard writes for Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates and commercial property finance news.
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