Gordon Brown has announced plans to revive the stagnant housing market…
…and clearly try and and save his own flagging leadership!
Gordon Brown has announced that properties costing less than £175,000 will be exempt from stamp duty for the next year!
This £600 million measure will take more buyers at the bottom end of the housing market (likely to be first-time buyers) out of the stamp duty bracket altogether, saving them up to £1,750.
The average UK property now costs £164,000 and at present those of you wishing to buy properties that cost between £125,000 and £250,000 have to pay 1% of the price to the Government in tax.
Howvere before we al get to excited by the announcement, the stamp duty holiday does not extnd to those of you with properties worth more than £250,000; you will have to keep paying the 3% in stamp duty.
Homes above £500,000 attract 4% in stamp duty.
David Kuo, Head of Personal Finance at money website Fool.co.uk, says
“The temporary raising of the stamp duty threshold from £125,000 to £175,000 will save homebuyers up to £1,750 when they purchase a property.
“As a result of today’s concession by the Treasury, almost half of all housing transactions will now be exempt from stamp duty. However, stamp duty is just one of many costs that house buyers need to consider when purchasing a home.
“Affordability is crucial, and with house prices still overvalued Fool.co.uk urges prospective buyers to tread carefully. Any benefits from a one-off tax boost could be wiped out if house prices fall as little as 1%.
“Additionally, a stamp duty holiday will be forgotten when you are mid-way into a 25-year mortgage term. The saving of £1,750 in stamp duty, whilst welcome, represents less than 0.5% of the total repayments on a £175,000 mortgage over 25 years.
“In a falling property market, it is more important to be able to regularly overpay your mortgage to sidestep the problem of negative equity rather than be swayed by temporary tax giveaways.”
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Stamp Duty - The Facts
Stamp duty is a tax charged by the government when you buy property or shares. There are different kinds of stamp duty, which apply to different purchases.
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Stamp duty on homes and land
Stamp duty land tax (SDLT) is levied by the government on the purchase of houses, flats and other land and buildings. The tax, which is often referred to simply as stamp duty, has existed in various forms since the 1690s.
Stamp duty is currently graded into four bands and represents a percentage of a property's purchase price.
On properties costing up to £175,000 there is currently no duty to pay. After that there are three stamp duty tiers:
£175,001 to £250,000 = 1%
£250,001 to £500,000 = 3%
£500,001 and above = 4%
The 0% threshold has been increased by the government on a temporary basis, running for 12 months until September 3 2009. At that point, it may be adjusted back down to previous level of £125,000.
Your stamp duty bill is calculated on what has been dubbed a "slab structure" rather than being charged on a sliding scale. This means that if your property costs between £250,001 and £500,000 you pay 3% of the entire value, not just 3% on the portion that goes over the £250,000 threshold. This is unlike income tax where you pay a different tax rate on different portions of your earnings.
A word of warning is that this can make for huge jumps in the tax levied against the price of your house. For example, if you pay £250,000 for your home your stamp duty bill will be £2,500. However, if you pay £250,001 you jump to the 3% band and your tax bill trebles to £7,500.03!
Rather than buying somewhere for a price just over one of the thresholds and facing a large bill, it might seem like a good idea to agree a lower purchase price and a separate price for items such as the carpets and curtains.
However, since 2003 purchasers have been expected to fill in a Land Transaction Return form.
This is a complicated 6 page document of 70 questions, outlining in detail the nature of the transaction (click here for a sample copy) and is designed to weed out instances where a property price has been kept artificially low.
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Stamp duty-free properties
From September 3 there will be no stamp duty to pay on properties costing up to £175,000. This is a temporary threshold in place of the previous £125,000 threshold and has been implemented by the government in an attempt to get the property market moving and help first-time buyers.
As of October 1 2007, zero-carbon homes have also been subject to different rules. All qualifying properties changing hands for up to £500,000 are exempt from the tax, while those valued at more than £500,000 have £15,000 knocked off their stamp duty bill.
For the purpose of stamp duty relief, a zero-carbon home means a home that is energy efficient in terms of heat loss, C02 emission rate and net C02 emissions. However, the regulations only have effect until September 30 2012, and buyers of a second-hand zero-carbon home will not qualify for the tax relief.
In 2005, the government introduced something called disadvantaged areas relief in the hope of stimulating residential sales and regenerating certain locations. A property in one of these designated areas that costs less than £150,000 was free from stamp duty. Now, of course, properties would be free from stamp duty up to the new £175,000 temporary threshold.
SDLT is a self-assessed tax, so it is the responsibility of the individual buyer to ensure that they have accurately calculated and paid their liability. However, in reality most of this will be carried out as part of the duties of the buyer's solicitor. He or she will generally complete the Land Transaction Return form, supplied by HMRC, and pass this on to the buyer to be read and signed.
The tax must be paid within 30 days of the effective date of the transaction, which in most circumstances is the date of completion on the property. Once the Land Registry has received a certificate from HMRC that the duty has been paid, it will register the new ownership of the property.
So, are you pleased by the news that some stamp duty will be suspended, or will it not make any difference?
Should Gordon Brown be doing anything else to improve the mortgage and property markets?