What is Stamp Duty (and How Can a Bridging Loan Help)?

With the Stamp Duty holiday having officially ended, normal rates have resumed. This means that both first-time buyers and movers alike must once again factor Stamp Duty costs into their property purchase decisions.

What is stamp duty?

Getting to grips with the fundamentals of Stamp Duty is fairly straightforward, but essential nonetheless. Stamp Duty is payable on millions of property transactions each year, but not everyone is liable for Stamp Duty payments.

For example, residential property buyers in England and Northern Ireland pay no Stamp Duty on the first £125,000 of the property’s value. In addition, first-time buyers pay no Stamp Duty on the first £300,000 of their home’s market value.

After which, 5% is payable on the price of the property between £300,000 and £500,000. Higher rates apply for properties valued at £500,000 or more.

This means that most first-time buyers are not liable for Stamp Duty payments at all, with most property transactions in the UK falling below £300,000.

Different rules apply in Wales, where Land Transaction Tax is payable on homes valued at £180,000 or higher. Likewise, homes valued at £145,000 or more (or £175,000 for first-time buyers) are subject to Land and Buildings Transaction Tax in Scotland.

But what remains consistent across the board is the requirement to pay this property purchase tax as quickly as possible. You have just 14 days to make the payment in full, which is where a fast-access bridging loan could get you out of a bind.

Stamp duty on second homes

Existing homeowners purchasing a second property in England or Northern Ireland with a value in excess of £40,000 are liable for an additional 3% Stamp Duty payment (on top of the normal sum).

This applies to holiday homes, buy-to-let properties and second homes in general, but does not apply to houseboats, caravans and other non-static homes.

This higher-rate Stamp Duty may also be payable if you complete the purchase of your next home before selling your current home. However, you will be able to apply for a refund of this additional 3% Stamp Duty once the sale of your previous home is complete.

If you need a temporary financial solution to ‘bridge’ the gap between buying and selling, an affordable bridging loan could be just the thing.

Call UK Property Finance anytime to discuss the potential benefits of bridging loans in more detail.

Current stamp duty thresholds

As of October 1^st 2021, the following Stamp Duty threshold came into effect for most homebuyers in England and Northern Ireland:

Proportion of property value	Stamp Duty paid
Up to £125,000	0%
£125,001 – £250,000	2%
£250,001 – £925,000	5%
£925,001 – £1.5m	10%
£1.5m+	12%

Land Transaction Tax (LTT) applicable in Wales as of July 1^st 2021 are as follows:

Property value	Land Transaction Tax paid
£0 – £180,000	0%
£180,001 – £250,000	3.5%
£250,001 – £400,000	5%
£400,001 – £750,000	7.5%
£750,001 – £1.5m	10%
£1.5m+	12%

Home purchases in Scotland are currently subject to Land and Buildings Transaction Tax (LBTT) at the following rates:

Property value	Land and Buildings Transaction Tax paid
£0 – £145,000	0%
£145,001 – £250,000	2%
£250,001 – £325,000	5%
£325,001 – £750,000	10%
£750,001+	12%

Stamp duty on buy-to-let properties

Private landlords have been hit particularly hard by recent tax reforms in the UK and are also subject to higher Stamp Duty payments than conventional homebuyers.

A 3% surcharge now applies on all BTL property purchases valued at £40,000 or over – a full breakdown of current thresholds is as follows:

Proportion of property value	stamp duty paid
Up to £125,000	3%
£125,001 – £250,000	5%
£250,001 – £925,000	8%
£925,001 – £1.5m	13%
£1.5m+	15%

Buy-to-Let properties are subject to different taxation rules in Wales and Scotland – the respective information for which can be found on each country’s official government website.

Bridging loans for stamp duty payments

It is a legal requirement to meet HMRC’s Stamp Duty demands within 14 days of a property purchase being agreed upon. After this, significant penalties may be payable, increasing as the debt remains unpaid.

This is where affordable bridging finance has the potential to save homebuyers time, money and stress. If difficulties are encountered covering Stamp Duty obligations, a short-term bridging loan offers an ideal solution.

Unlike most conventional loans, bridging finance can be arranged within a few working days. This makes it ideal for covering time-critical expenses, where delays could lead to further costs and complications.

In the case of Stamp Duty, a bridging loan could be taken out to cover the required payment and repaid after a few months. Bridging finance is typically charged at a rate of around 0.5% per month, making it a uniquely cost-effective facility when repaid promptly.

A few common features of bridging loans:

• Funds can be arranged and accessed in a few days
• Loans available from £10,000 with no upper limits
• No monthly repayments or initial deposit
• Interest rates as low as 0.5% per month
• Open to poor credit applicants and self-employed workers
• Can be secured against most types of properties
• Ideal for time-critical tax payments

Bridging loans are issued primarily on the basis of two things – security for the loan and a viable exit strategy. In the case of Stamp Duty payments, most bridging loans are repaid when the borrower’s previous home sells, or with personal savings accrued over the course of several months.

It is even possible to repay bridging finance with a conventional unsecured loan or personal loan, which can then be repaid gradually with affordable monthly instalments.

If you have any questions or concerns regarding your capacity to meet your Stamp Duty obligations, call UK Property Finance anytime for an obligation-free consultation.

What other purposes can bridging loans be used for?

The beauty of bridging finance lies in its versatility, as the funds can be used for almost any legal purpose.

Just a few of the most common applications for bridging loans in the UK include the following:

1. Escaping the property sales chain

Bridging finance can grant existing homeowners the spending power of a cash buyer when looking to relocate. Rather than relying on the sale of their current home to fund their move, they can buy their next home with a bridging loan and repay the facility at a later date when their previous home sells.

2. Renovations, restorations and conversions

Sellers intent on selling their properties for the best possible price often conduct repairs and renovations, prior to putting them on the market. Bridging loans are commonly used to fund minor, moderate and major renovations to residential properties, with the aim of repaying the loan when the property sells for an agreeable price.

3. Auction property purchases

Buying a low-cost property at auction means paying the full outstanding balance within 28 days; as bridging finance can be organised within a few working days, it is ideal for funding time-critical purchases and investment opportunities like these.

4. Fast purchases 

It could also simply be that you have found your dream home at an unbeatable price, and you would prefer not to be beaten to the punch by a competing bidder.  With bridging finance, rapid property purchases are possible without having to rely on conventional loans or mortgages.

5. Starting a business 

Bridging finance also has an endless range of business and commercial applications. Many borrowers use bridging loans to raise the funds needed to start a new business, repaying the loan at a later date when their start-up begins turning a profit. Lending criteria for bridging finance are fairly relaxed, making it ideal for entrepreneurs with no provable experience or track record.

How can I get a bridging loan?

The key to getting a good deal on a bridging loan lies in seeking experienced broker support at an early stage. Your broker will help determine your suitability for bridging finance before scouring the market to find the perfect product for your needs.

They will also negotiate on your behalf to ensure you get an unbeatable deal while ensuring your application is processed as quickly and smoothly as possible.

For more information on any of the above or to discuss the benefits of bridging finance in more detail, contact a member of the team at UK Property Finance today.