13 Essential Taxes & Fees: What Every UK Homebuyer Absolutely
Needs to Know
Financial considerations, including expenses and costs, are always top of mind for buyers, whether purchasing property domestically or internationally. The UK’s property tax landscape is complex, with homebuyers facing not only down payments and mortgage repayments but also additional fees and taxes. Familiar with stamp duty? But what else? This article will walk you through the complete range of fees and taxes associated with buying property in the UK
1. Surveyor’s Fee & Valuation Fee
It’s always wise to opt for a pre-purchase survey and valuation, each catering to distinct needs.
Surveys focus on evaluating the structural integrity of a property, identifying any potential concerns or risks. This is particularly crucial for those purchasing second-hand properties. Tailored to buyers’ requirements, surveyors can offer three levels of survey reports: a condition report, a homebuyer report, and a building survey, with prices ranging from £400 to £2,000.
Valuations, in contrast, appraise a property’s market value, appealing to a broader spectrum of buyers as it helps assess the risks associated with property investment. While many mortgage providers include a complimentary valuation, buyers may need to enlist a valuation service at a cost of around £300 to £1,500 when not offered. A variety of valuation options exist, and in the UK, a registered surveyor under the RICS (Royal Institution of Chartered Surveyors) must conduct the valuation.
2. Legal Fees
In both new and pre-owned property transactions, lawyers represent both parties and prepare all necessary documents. Legal fees, typically ranging from 0.2% to 1% of the property’s value, depend on transaction complexity and property valuation, and may increase if a mortgage is involved. Utilizing legal services from inception to completion alleviates the burden of navigating intricate documentation and processes, ensuring a seamless, error-free transaction.
3. Estate Agent’s Fee
In deciding to invest or lease properties, buyers commonly engage property agents to locate tenants and offer services, including rent collection, maintenance, and profit and loss reporting. Buyers are responsible for an 8% to 12% commission on the monthly rent, payable to the agent.
4. Deposit
Upon granting a mortgage loan, buyers contribute a property deposit to the owner. Should the buyer opt for cancellation post-deposit, the owner reserves the right to retain it. In the UK, deposits typically span £2,000 to £10,000, contingent on property price and developer’s terms.
For new properties, a down payment which has little to do with the mortgage usually ranges between 10% and 30%.
Second-hand property deposits hover around 10%, necessitating immediate payment upon contract signing.
5. Mortgage Fees
Upon granting a mortgage loan, buyers contribute a property deposit to the owner. Should the buyer opt for cancellation post-deposit, the owner reserves the right to retain it. In the UK, deposits typically span £2,000 to £10,000, contingent on property price and developer’s terms.
For new properties, a down payment which has little to do with the mortgage usually ranges between 10% and 30%.
Second-hand property deposits hover around 10%, necessitating immediate payment upon contract signing.
6. Leaseholders’ Costs
UK properties are classified as either freehold or leasehold. Leasehold ownership typically spans 90 or 120 years, with leaseholders obligated to pay ground rent, approximately £100-£800 annually, to the freehold owner.
7. Management Fee
Buyers must consider management fees payable to property management firms, even if they opt to rent out their property. These fees typically equate to 10% of the monthly rental income, and vary based on property prices, with more luxurious developments incurring higher costs. For apartments in London, management fees typically range from £2 to £6 per square foot.
Property management fees predominantly apply to leasehold owners. Freehold owners, however, are exempt as they bear all associated expenses.
8. Maintenance Cost
Upon purchasing a new home, maintenance becomes a yearly budget consideration. Typically, annual maintenance expenses range from 1% to 4% of the property’s value, with variations based on age, size, condition, and location.
For leased properties in the UK, landlords must ensure such appliances as heaters and stoves are functional and safe, and annual safety inspections are in place.
9. Stamp Duty
Stamp Duty Land Tax, SDLT, or simply Stamp Duty, is a vital component of the home-buying process in the UK. To ensure a valid transaction, buyers must complete requisite procedures and submit Stamp Duty payments within the 30-day post-transaction window. For the purchase of a main residence costing more than £250,000, a stamp duty spanning from 2% to 12% will be levied.
Use the SDLT calculator to work out how much tax you’ll pay.
10. Capital Gains Tax
When dealing with property transactions, either by selling or leasing, owners are obligated to pay Capital Gains Tax. This tax is applied to the profit made from the transaction, rather than the total monetary value received. Some assets are tax-free – you do not have to pay Capital gains tax if all your gains in a year are under your tax-free allowance. For the tax years 2022-2023 and 2023-2024, the annual exempt amounts were set at £12,300 and £6,000, respectively.
The Capital Gains Tax rates vary based on an individual’s Income Tax status. For residential properties, basic-rate taxpayers pay 18% on gains they make when selling property, while higher and additional-rate taxpayers pay 28%.
11. Council Tax
Council Tax is an annual fee your local council charges you for the services it provides, like rubbish collection and libraries. It varies depending on your home’s valuation band, with higher rates in urban areas and lower rates in rural regions, generally speaking. Typically, Council Tax ranges from 0.05% to 0.4% of the property value, or £1,400 to £1,800 annually, divided into 10 instalments.
Certain situations may qualify for a Council Tax discount:
• All household members being full-time students
• Property vacated due to owner’s death
• Unoccupied property undergoing renovations
• Disability of a resident
• Property not serving as a primary residence or rental
• Sole resident aged 18 or older
12. Inheritance Tax
Inheritance Tax (IHT) is a tax levied on the estate of a deceased person, encompassing all assets, property and cash. The prevailing standard IHT rate stands at 40%, applicable to the portion of the estate exceeding the threshold of £325,000.
However, if all assets exceeding the £325,000 threshold are bequeathed to a spouse, civil partner, charity, or community amateur sports club, no IHT is typically payable. Additionally, if a home is gifted to children, including adopted, foster, or stepchildren, or grandchildren, the threshold can rise to £500,000.
In cases where the estate of a married or civil partnership couple is valued below the threshold, any unused portion of the threshold can be transferred to the surviving partner’s threshold upon the death of the first partner.
13. Rental Income Tax
In the UK, property income tax is levied on rental earnings from both residential and commercial properties for residents and non-residents alike. Individual total income determines tax rates, which include basic (20%), higher (40%), and additional (45%) tiers. Tax liabilities can be lessened with deductions and allowances, such as property expenses, mortgage interest, and wear and tear for furnished properties.
Still confused?
Unsure about which taxes apply to your situation or if you qualify for any exemptions? Talk to our team of experts and let us take care of the rest
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