Budgeting to buy a new home is no minor task. You need to budget savings for a deposit, then budget for your monthly instalments and still cover additional taxes. We give you a quick rundown of what taxes you may need to pay and what tax you may need to pay if you sell again at any point.
You have to pay stamp duty if you buy a property in the UK for over £125,000 (a house, flat or piece of land). The percentage of stamp duty you pay will increase as the purchase price of your property increases.
- For residential properties which have a total purchase price of £125,001 - £250,000, you will pay stamp duty amounting to 1% of that figure.
- For properties costing between £250,001 and £500,000, you will pay 3% of the total purchase price and then each price bracket above comes with a 1% increase.
- Mansions over £2 million will incur 7% stamp duty.
The recent property boom has meant that many more buyers are now purchasing properties in the £250,001 and £500,000 category and so have to pay more stamp duty. According to the Telegraph, in 2013, 25% of property sales were for homes costing £250,001 or more, which was a 10% increase from 10 years ago. This is particularly true of London and Southern England where house prices can fetch an average that is double that for the rest of England (which is roughly £262,000).
If you are lucky enough to inherit a property, and if the estate of the deceased is worth more than £325,000 (this includes the property and its possessions), the personal representative of the estate will need to pay 40% of its value to the government. However, this percentage could be decreased to 36% if 10% of the estate or more is left to charity. Read more here. Inheritance tax needs to be paid six months after death, after which interest will be added. Inheritance tax has also come under scrutiny recently, due to more properties meeting the threshold, resulting in more inheritance tax paid to government.
Capital gains tax
According to Gov.Uk, “Capital Gains Tax is a tax on the profit when you sell or give away something (an ‘asset’) that has increased in value, over £6,000 ”, but where property is concerned this tax only applies if it is an additional home or investment property. The rate then would be between 18% and 28% depending on how much you gained. You do not pay capital gains tax if you benefit from the sale of your only or main home; in other words, you live there for the most part (except holidays) and you have not let it out.
In conclusion, if you are buying a property then the only tax that will apply is stamp duty, whereas if you inherit a property you will only be liable for inheritance tax if that value is over £325,000. You can easily find out the value of your property by contacting an estate agent such as Tepilo. Capital gains tax only applies if you are selling your investment property – and not to your main property. We hope that helps – good luck!