Stamp Duty

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Stamp Duty and a Joint Equity purchase

► What is Stamp Duty?

When you buy a house the buyer has to pay a tax called Stamp Duty Land Tax (SDLT) or more commonly referred to as Stamp Duty.

It is calculated on a scale with purchase price bands.

£0 to £125,000 it is 0%

£125,0001 to £250,000 it is 1%

The important thing is that it is charged at the rate for the whole price.

To explain:-

If you buy a house for £120,000 the rate is 0% so the ADLT is

£120,000 x 0% =£0

However, if you buy a house for £130,000 the rate is 1% so the SDLT is

£130,000 x 1% = £1,300

You do not get charged 0% up to £125,000 and 1% over that.

This Is Money web site helpfully offers a really simple calculator to work out what your Stamp Duty will be here.

Don’t forget that this amount is shared by both Partners in the percent of their ownership Share. So if you have to pay £1,300 Stamp Duty and have a 50% Ownership your contribution is £650.

► I am a First Time Buyer can I get tax relief?

In the March 2011 budget the Chancellor provided a tax concession for First Time Buyers that extended the 0% rate band to £250,000

On the face of it it seems a “good thing” but George Osbourne defined First Time Buyers very narrowly. You can see more on the Inland Revenue site here and he also excluded some people.

The relevant exclusion for a Joint Equity purchase is:-

one of the buyers is a first-time buyer but someone buying the property with them has owned residential property before

That means essentially that the Owner Partner, even if they qualify for the narrow First Time Buyer status, are excluded from the relief as the Investor will inevitably have already owned a property.

So First Time Buyer tax relief does not apply to Joint Equity purchases however, the amount of Stamp Duty you pay is shared with your Investor Partner so at a 50% Share you pay 50%.

► Short History of Property Stamp Duty

Stamp Duty was first levied in the UK in 1694 to pay for the war with France. Although initially only planned for four years, it proved such a good earner for the government that it was never repealed. Sound familiar?

At first the tax covered “vellum, parchment and paper”, but this was extended during the 18th and 19th centuries to cover a range of goods, including newspapers, insurance policies, gold and silver plate and even hair powder. The tax was extended to property sales in 1808.

In 1765, the attempted enforcement of stamp duty in English colonies in America led to protestor’s demands of “no taxation without representation” – and ultimately to the Boston Tea Party and the outbreak of the American War of Independence.

In 1797, William Pitt the Younger described stamp duty as "easily raised, pressing little on any particular class, especially the lower orders of society, and producing a revenue safely and expeditiously collected at small expense." He virtually doubled the tax that year.

In 1984 the Tory Chancellor Nigel Lawson eased the pressure on home buyers by increasing the threshold for stamp duty on property from £25,000 to £30,000 and reduced the highest rate of stamp duty from 2% to 1%.

In 1991, during the last housing recession, the Conservative government temporarily suspended stamp duty for nine months on all properties worth less than £250,000 in an effort to boost sales.

But during the housing boom of the late 1990s/ early 2000s, when many more houses became liable for stamp duty, Gordon Brown came under increasing pressure to adjust the thresholds accordingly. In 2000-01, the Inland Revenue received £2.145 billion from residential stamp duty; in 2002-03, it received £3.59 billion.

In 2003 Brown replaced Stamp Duty on property with Stamp Duty Land Tax and replaced the simple form with a 70 question 14 page document that needs a solicitor to complete.

In his 2005 Budget, Brown finally increased the zero rate stamp duty threshold from £60,000 to £120,000, and increased it slightly again in 2006 to £125,000.

By 2007 the tax take had risen to £6.5 billion.

In 2011 George Osbourne added a new 5% band for properties over £1million.

But campaigners such as the Council of Mortgage Lenders (CML) want further reform to this controversial tax. The CML says that stamp duty unfairly constrains first-time buyers. It favours a graduated structure that only charges higher rates of duty on the proportion of the property value above each threshold.