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Thank you all so much for your responses! Given my years of watching Love It or List It, and not understanding the fees, it's now an itch that's been scratched. I appreciate hearing several points of view on it.
I can understand real estate fees, of course. Stamp Duty was what I couldn't wrap my head around. The comment that makes the most sense (to this non-UK resident) was this:
IF this is where the money really goes (and not in politicians pockets like it so often does in the U.S.), and IF people are happy with the rules and benefits of this system, then I can (partially) understand the purpose of Stamp Duty.
But that raises one other question: How do non-home-owners pay into the system for everyone's benefit? (I mean in ways that home owners don't.) I realize it all can't all be funded by Stamp Duty, and that it's only just one flow of funding, but it does seem a bit unfair to homeowners to pay so much more than those who are content with renting. Are there fees or duties when renters move, too?
have you purchased a home in the states? you pay all sorts of fees. the UK fees just seem to go to a different pot than the ones in the states. your loan origination fees in the states are about 1%, real estate commissions are about 6%, aren't they? everyone pays it seems.
No, but then I guess that's a bit like the US where homeowners pay annual property taxes while renters don't.
Which is another difference between the two countries, stamp duty taxes for buying an expensive property in London are more expensive than for buying a similar priced house in NYC or San Francisco but then you'll pay many times more each year in property taxes in those US cities compared to London.
That's not completely true, actually. Property taxes are one of the expenses figured into rental rates. Property owners who rent take into consideration every expense of the property to them, average it out per rental unit, and then figure in the amount of profit they'll make, usually based on the going market rental rates. Annual property taxes are one of those expenses taken into consideration. No landlord is just going to eat that fee themselves.
That's not completely true, actually. Property taxes are one of the expenses figured into rental rates. Property owners who rent take into consideration every expense of the property to them, average it out per rental unit, and then figure in the amount of profit they'll make, usually based on the going market rental rates. Annual property taxes are one of those expenses taken into consideration. No landlord is just going to eat that fee themselves.
Actually, the way it works tends to be.
You see what similar properties rent for in that area. Then set the rental price, then deduct expenses what's left is profit (and sometimes the sole profit is from property value increase).
You probably wouldn't succeed setting the price based on costs and intended profits, because you'd probably be above FMV for the rental market.
However, while property taxes are figured in to the rental costs, it's only indirectly. If a renter is in good standing with rent and has 10 months left on a rental agreement when local property taxes increase by say 1%, the owner has to eat that cost, and/or any additional costs the local or state govt. decides to levy. Further renters no more pay property tax, than you pay Amazons fuel bills, which is to say, you kinda do, but really don't.
It does get expensive for high end properties but the example you gave is extreme. If Stamp Duty is £30,000 then that means the price is £800,000 which is almost 4x the national average home price and almost 2x the London average. The vast majority of transactions pay nothing like that amount. .
Are you kidding, my son bought 3BR, 1 Parlor ex-council house for just under £400,000...in Tottenham!
Yeah, but Tottenham is way more expensive than the national average even if its not the most desirable part of London. Just being close to central London means prices are high.
Average property price for London is something like £450k, average property price for the UK as a whole is something like £225k. If you look at price /square metre then the difference is probably more than double as London has a bigger proportion of small 1-bed apartments than most other places.
London and the SE does pay the majority of Stamp Duty for the whole country because of price levels there.
You see what similar properties rent for in that area. Then set the rental price, then deduct expenses what's left is profit (and sometimes the sole profit is from property value increase).
You probably wouldn't succeed setting the price based on costs and intended profits, because you'd probably be above FMV for the rental market.
However, while property taxes are figured in to the rental costs, it's only indirectly. If a renter is in good standing with rent and has 10 months left on a rental agreement when local property taxes increase by say 1%, the owner has to eat that cost, and/or any additional costs the local or state govt. decides to levy. Further renters no more pay property tax, than you pay Amazons fuel bills, which is to say, you kinda do, but really don't.
Is similar for stamp duty on purchases I think. A couple of years ago the rates were increased for second home owners and non-resident corporate buyers and since then the prices at the top end of the London market where there are a lot of those kind of buyers have cooled off a bit. People have X amount to spend so if the taxes increase the price comes down a bit to compensate, the market won't just carry on as was and pay the extra taxes on top of the price, the market adjusts.
We have the same in Australia. Sounds like we can blame our British heritage. You can often pay $A100,000 in stamp duty on a sale in Sydney. Around $US70,000. Our state government has had a massive windfall these past few years from stamp duty, is out of debt and is supposedly spending it all on major infrastructure projects. Of course not everyone agrees on their worth. We also pay land tax on investment properties above a certain amount which can pretty well make the properties get almost zero return.
Is similar for stamp duty on purchases I think. A couple of years ago the rates were increased for second home owners and non-resident corporate buyers and since then the prices at the top end of the London market where there are a lot of those kind of buyers have cooled off a bit. People have X amount to spend so if the taxes increase the price comes down a bit to compensate, the market won't just carry on as was and pay the extra taxes on top of the price, the market adjusts.
My son recently bought a flat in London, and was hit with the 2 property increase due to being part owner of a cottage in Cornwall. SDLT on the flat nearly doubled.
Now he tells me he has "heard" that if he goes to sell either property, there is a seller's extra tax because of 2 properties. Is this true, and if so, what are the rates ? Any on-line link to specific info ?
My son recently bought a flat in London, and was hit with the 2 property increase due to being part owner of a cottage in Cornwall. SDLT on the flat nearly doubled.
Now he tells me he has "heard" that if he goes to sell either property, there is a seller's extra tax because of 2 properties. Is this true, and if so, what are the rates ? Any on-line link to specific info ?
You talking about CGT? Capital gains tax?
You'd pay that on profits above an annual threshold of all capital gains of £11,700, second properties would be taxed 18% of the net gain (proceeds, minus cost, cost of maintenance/upgrades, minus incidental costs of sale and original purchase).
My son recently bought a flat in London, and was hit with the 2 property increase due to being part owner of a cottage in Cornwall. SDLT on the flat nearly doubled.
Now he tells me he has "heard" that if he goes to sell either property, there is a seller's extra tax because of 2 properties. Is this true, and if so, what are the rates ? Any on-line link to specific info ?
Quote:
Originally Posted by Gungnir
You talking about CGT? Capital gains tax?
You'd pay that on profits above an annual threshold of all capital gains of £11,700, second properties would be taxed 18% of the net gain (proceeds, minus cost, cost of maintenance/upgrades, minus incidental costs of sale and original purchase).
So it's a tax on profit then, not sale price ?
Re "annual threshold", is the £11,700 multiplied by the number of years of ownership ?
If the tax rate on profit, above the accumulated £11,700 amount, of the second property is 18%, what is rate on first property ?
Is the first property always the owner's primary, main residence, and the second is a vacation (or rental ?) house ? Or is it which one is sold first ?
BTW, the cottage is not a rental. Only used as a vacation home by son and his aunt.
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I appreciate hearing several points of view on it.
