Stamp Duty Land Tax is paid at a variable rate for properties sold over £125,000. This is charged 1% for most properties up to £250,000, 3% between £250,001 and £500,000 and 4% above that. The duty is paid on the whole of the purchase price and not just the amount above the cut off. For example a house costing £195,000 would produce a stamp duty bill of £1950. While the stamp duty burden can be avoided for buyers below £125,000 for others moving further up the property ladder can be an expensive experience with the stamp duty burden now by far the biggest purchase cost and at the higher end this amounts to nothing less than a wealth tax and, as an example, a property purchased at £650,000 would attract stamp duty of £26,000!

On one view it may considered that the higher rates only apply to those who can afford to pay and represent a reasonable fiscal policy but the way it impacts at the cut off points and at the lower end for properties just over £125,000 can be particularly unfair and illogical. On a purchase just over the exempt limit of £125,000 it will be quite a jump for purchasers going over the limit and £1,250 is a significant sum of money to buyers at this level, often more than the monthly wage and impacting on properties well below the average price of a house and considered to be "affordable housing". This has inevitably led to a distortion of the market with purchases just over the limit not achieving their full potential particularly where sales over £250,000 attract an additional 2% resulting in an extra £5000 in tax and producing a black hole effect. The stagnation of the market and bunching of prices around the 3% cut off point is clear evidence that buyers are discounting the stamp duty cost as they are reluctant to pay for nothing. Surely it would be fairer to introduce a system that would apply liability to stamp duty on a more gradual basis. A simple solution would be to levy the charge on the excess over the appropriate limits and not on the whole amount. Simply raising the exempt limit helps some and harms others and shifts the problem in a way that distorts the market and indeed hits those who can least afford it, such as those with young children and limited earnings.

For any purchaser the cost involved in a house purchase is something that should be identified at the outset. When budgeting for a purchase it is important to obtain a bottom line figure detailing all fees and other costs. At Hastings & Co we try to make life easy and we will provide a comprehensive quotation on request. Likewise for sellers it is important to know what costs will be involved and it is essential to get good advice on where to pitch the asking price. The potential impact of stamp duty on the price achievable is one of a number of important considerations to be taken into account when deciding to market your house as well as local market conditions and how best to attract buyers to your property.

For a free property consultation or valuation contact Ron Hastings at The Property Shop in Kelso or Selkirk or email enq@hastingslegal.co.uk