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When you’re downsizing your property, you need to make sure you’re making the right choice. This means that at the end of the process, the move will provide you with the financial comfort you’re aiming for.
While it can be simple to look at the difference between property values and assume that downsizing will help free up your finances, there are plenty of other costs and taxes that could swiftly cut into these profits. One example of this is the Stamp Duty Land Tax which typically must be paid on most property transfers.
In England, the Stamp Duty threshold is currently £125,000 for residential properties and while downsizing may lead to a property that is valued lower than that, it’s important to know if you’ll have to pay.
The amount of Stamp Duty you’ll have to pay depends entirely on the value of your house and the bands currently stand at:
Up to £125,000: Nothing to pay
£125,001 to £250,000: 2%
£250,001 to £925,000: 5%
£925,001 to £1.5 million: 10%
Anything above £1.5 million: 12%
So, if you were moving to a property worth £150,000, you would fall into the 2% bracket and the total amount of Stamp Duty tax to pay would be £3,000.
While it is unlikely that anyone downsizing will be moving to a property that reaches the 10% band, knowing how much you are set to pay can help you calculate the extra costs that come alongside a new home.
If you’re looking to downsize your property to free up some finances, then you need to make sure that the various taxes and charges don’t eat into your funds too much. Alongside, this it’s vital to realise that if you are downsizing for financial purposes, then just moving to smaller property may not be the answer.
There are many external factors that can affect the value of a property from the local schools to the nearby transport links. So, just because a house is smaller than your current home, doesn’t mean that it will help you free up any financial assets that you may be hoping for.
By weighing up all the extra factors such as Stamp Duty, Capital Gains Tax and solicitor’s fees, you can ensure that no matter the reason you’ve decided to downsize, you can ensure that you’ll be living comfortably in your new home.
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