Purchasing a house or any other accommodation is a significant step. However, the experience requires consideration, time and money. The whole process is not that simple and easy, so you will need professional assistance in order to take maximal advantage and minimize the tax amount.
The client should possess basic knowledge about the process to be able to estimate the approximate final cost of the purchased property. Basically, when you want to calculate the average amount you will spend on the house, you need to take into consideration the following applicable taxes:
- Notary fees required for the property to be registered;
- Value added tax for the new property;
- ITP for used property, etc.
Considering the exact sum of money you will need to pay for each transaction, it may vary greatly, depending on the condition of the house you want to purchase and its cost. For instance, if your accommodation costs less than 400 thousand pounds, the ITP rate is 8%, while the purchase from 400 to 600 thousand pounds will be charged with 9% and those objects over 600 thousand pounds – 10% ITP.
Additionally, those houses that are subjected to ITP do not presuppose extra fees on documentation and other expenses, while taking a mortgage, you will have to pay AJD. On average, the tax you will have to pay for the registration of the property will vary from 300 up to 1,200 pounds.
VAT and ITP: Clarifying the Difference
Purchasing a house in the UK, you will face certain challenges at the point of paying taxes. Why? Because they differ greatly. VAT and ITP are the most significant and big taxes you will have to cover. Additionally, fees for estate agents, notaries and registration cost will be required. So, trying to find out the right option and estimate approximate expenses, the client should possess information about both cases and instances of their application.
Don’t use cash during the transaction, replacing it with bank transfer or cheque, as it will be safer and more effective. Thus, before you start overviewing future tax payments, you need to remember that a range of obligatory taxes differs depending on the type of accommodation you are looking for. In simple words, stamp duty and VAT are required in case you buy a newly built house directly from the constructor’s. ITP, at the same time, is payable if you purchase an already existing house from a private seller.
VAT and ITP: General Information and Specifications of Each Tax
Looking for a house, you may be charged with one of the taxes, either VAT or ITP. It will basically depend on the property condition. If you buy a new house, building plot or commercial property, you will be charged with Value Added Tax.
VAT is a tax charged in case a customer purchases a 100% new, previously non-occupied residential property. As a national tax, VAT is calculated in accordance with the location of the house. While the sum may vary greatly depending on the area of its location, the average VAT is 10% from the cost of residential property. Buying commercial property you will need to pay over 20% VAT.
Once you buy the house privately, you will have to fill in an official self-settlement form before you transfer the necessary sum to the account of the exchequer. However, you can use the services of lawyers or agents, who will help you deal with all the numbers and big sums.
ITP, also known as a transfer tax, is applied to pre-owned houses. Once you are in search of the property that has already been owned by other people, you will be exempted from the VAT and related duties. Instead, you will need to pay a transfer tax. Its rate may also vary from 6 to 10%, depending on the area. Every customer can count an approximate cost of the ITP if he/she possesses information about the number of previous property deeds. For example, if you are buying a house with 3 equal apartments for 1 million pounds and each of the apartments has previous property deeds, 3 separate ITP transactions will take place.
Generally, you will get a month to pay the transfer tax and stamp duty after the day the deed is registered. Once you have paid all the taxes, you get a right to register the property in the corresponding registry.
Considering other fees, the customer should get extra information before the purchase. The vendors, who contracted the agency, should pay extra estate agent fees. Besides, the notary’s fee, lawyer’s fees and deed registration fee, banking and a range of other fees may be applied.
All in all, purchasing a new or pre-owned house, you will be charged with different fees, such as VAT and ITP. The rates and extra payments will depend mainly on the area of your living, size of the house and a range of other factors. Contact your estate agent to get detailed information about the specific accommodation you want to buy.