The Costs of Buying a House in the UK

Elliot
May 21, 2024
7 to 10 Mins
Updated:
June 12, 2024

The Costs of Buying a House in the UK

Contents

Intro and Overview

When buying a property, most people rightly think about the purchase price. 

Raise a deposit, match it with a mortgage and you’re ready to go. 

The reality of buying a property in England is that there are additional costs you must consider when working out your maximum budget. 

Rather than thinking of a purchase price, you should consider the total cost of acquisition. 

This is the total amount of money needed to complete a property purchase. This includes the purchase price and all associated costs, fees and taxes. 

The true cost of buying is:

When buying a property in England, you should budget for:

  • Stamp Duty Land Tax (SDLT) 
  • Legal Fees
  • Searches
  • Land Registry Fees
  • Surveys
  • Buildings Insurance

We would also suggest keeping a contingency of up to 1% of the property value for anything that could go wrong.

Stamp Duty Land Tax (SDLT)

SDLT, often referred to as Stamp Duty, is the largest additional expense.

What is Stamp Duty Land Tax (SDLT)?

SDLT is a tax paid on the transfer of property in England and Northern Ireland. It was introduced in the Finance Act 2003.

An SDLT return needs to be made on any property transaction within 4 weeks, regardless of if the transaction qualifies for a payment to be made. 


How Does SDLT Work? 

Stamp Duty is charged in bands. This means you will pay a different amount depending on the purchase price of the property. 

It is similar to income tax, where the first part of your income is charged at the basic rate, then any income above this threshold is charged at progressively higher rates.

With SDLT, the purchase price is applied against each band with the relevant rate charged. 

Once the threshold for one band is used, the remainder of the purchase price is carried into the next band and charged at the appropriate rate. 

This continues until the full purchase price has been charged.

What are the Stamp Duty Rates?

Stamp Duty Reliefs and Exemptions

HMRC offers reliefs and exemptions to certain demographics. 

There are a variety of reliefs and exemptions available at this current moment. Full details can be found on the HMRC website.

The most common SDLT exemptions are granted if:

  • You are purchasing a property for less than £250,000 and don’t own any other property. 
  • You are a first-time buyer and are paying up to a price of £425,000.
  • You are transferring the property as a result of a divorce or dissolution of a civil partnership 
  • You are using alternative property finance arrangements, such as buying a property under Sharia law. The initial purchase by the alternative finance company would have incurred SDLT. 

Generally, when buying a property for over £250,000, stamp duty is payable. 

It can be quite hefty, so it’s imperative you’ve factored it into your budget. 

Is Stamp Duty the Same for Everyone?

No, stamp duty is not charged at the same rate for everyone. 

The circumstance of the buyer has an impact on the tax due.  

Buyers fall into one of 4 main categories:

  • First Time Buyers
  • Home Movers
  • Additional Properties & Limited Companies
  • Non-UK Resident 

First Time Buyers

First time buyers are those that have never had a registered interest in a property. 

If you have never owned a property and you are buying for up to £425,000, no SDLT will be due.

You also pay reduced SDLT on purchases between £425,001 and £625,000. 

The exemption applies on the first £425,000. The remaining balance, up to a maximum purchase price of £625,000, is charged at 5%.

If buying a property for more than £625,000, no exemption is available.

Home Movers

Home movers are those that already own a property but intend to replace with the purchase of a new one. 

They could be buying in a chain, which is when you sell a property to fund another, or selling independently. 

They pay the standard SDLT rate, except when the new purchase will result in them owning more than one property on the day they complete.

In this case, the additional 3% rate is due. This can be reclaimed if they sell their home within 36 months of buying their new one. 

Additional Properties & Limited Companies

Anyone that will have an interest in more than one property at the end of the day of the purchase will fall into this category. 

All properties purchased in a company will also have to pay this additional rate.

There is a 3% surcharge levied on these purchases. This is in addition to the standard rate.

Non-UK Resident 

If you have been living in the UK for less than 183 days in the 12 months preceding a purchase, you are classed as a non-UK resident.

A 2% surcharge is due.

This surcharge applies on top of any other SDLT due, such as the additional rate. 

Stamp Duty Scenarios

As accountants, we love to use numbers to explain what we’re on about: 

In all the below scenarios, the purchase price is £500,000.

First Time Buyer

Bukayo is going to buy his first property. He has never owned a property before.

The property value is below £625,000, so the first-time buyer exemption applies.

The first £425,000 is charged at 0%

The remaining £75,000 is charged at 5% 

£425,000 x 0% = £0, plus 

£75,000 x 5% = £3,750

Total SDLT due = £3,750

Home Movers - Replacing Main Residence

Emile owns a flat, which he is selling in a chain to buy a house. 

On the day he completes, he will only own one property, so there is no surcharge. 

The first £250,000 is charged at 0% 

The remaining £250,000 sits within the next band, which is charged at 5%.

£250,000 x 0% = £0, plus 

£250,000 x 5% = £12,500.

Total SDLT due = £12,500

Additional Homes or Limited Companies 

The same 4 walls and roof are now being sold to Vivienne the investor, who has a property portfolio.

With the 3% surcharge, the first £250,000 is charged at 3% (0% + 3% ) = £7,500

The remaining £250,000 is charged at 8% (5% + 3% surcharge) = £20,000

£250,000 x 3% = £7,500, plus 

£250,000 x 8% = £20,000

Total SDLT due = £27,500

Foreign Purchasers

Kieran is Scottish and owns a house in England. 

For the last year, he has been working abroad. He wants to buy a new investment property.

Despite being a British citizen, he has not lived in the country for 183 days or more in the last 12 months. He is classed as a ‘non UK resident’ for SDLT purposes.

As he owns another property already, he has to pay the 3% surcharge.

As a ‘non UK resident’ he has to pay a 2% surcharge on top of this.

The first £250,000 is charged at 5% (0% base + 3% additional + 2% non-UK) = £12,500

The remaining £250,000 is charged at 10% ( 5% base + 3% additional + 2% non-UK) = £25,000

£250,000 x 5% = £12,500, plus 

£250,000 x 10% = £25,000

Total SDLT due = £37,500

So, when buying the same property worth £500,000, the SDLT due can vary quite significantly based on your circumstances.

Here, we summarise the calcs from above compared to a ‘standard’ purchase for £500,000, with no exemptions applied.

As you can see, investors pay £15,000 more than a standard purchase, while first time buyers pay £8,750 less. 

Non-UK residents are hit with the biggest tax bill, paying £25,000 more than the standard purchaser. 

These measures were introduced to help owner occupiers, aspiring and current, by increasing the costs of acquisition for investors, perceived as a way to reduce their demand. 

As always, investors have found creative ways to deal with this, such as special purpose vehicles (SPVs). More details on these will be in the upcoming blogs.

Legal Fees

Conveyancing is the legal process of transferring the legal title from one entity to another, which is done by a conveyancing solicitor. 

Legal fees vary firm by firm but are typically linked to the type of property you’re buying and where it is located.

Some mortgage products offer a free legal service, with the obvious benefit of not needing to pay a legal fee. 

Leasehold properties typically face a supplementary charge as the solicitor needs to deal with an additional party, the freeholder, and additional paperwork. 

Costs are typically £500 - £2,000 depending on the complexity of the transaction.

Searches

Searches are done to establish current and historical data on the property and land it lies on. 

These are done by your solicitor during the conveyancing process. 

The total cost of searches are typically £350 - £750.

There are 4 main searches:

  • Local Authority Search
  • Environmental Search
  • Water and Drainage Search
  • Land Registry Search.

It usually takes up to 4 weeks to get the results. They are ordered early in the legal process, so your solicitor can tackle other items while waiting for the results.

Local Authority Search

This search highlights any potential issues around planning, building control, roads and transport that could have an impact on the property.

It also states if the property is in a conservation area, is listed or if there are any tree preservation orders affecting the property. 

Environmental Search

These searches look at potential impacts of the environment on the property, such as liability to flood, potential for subsidence or landslide and contamination issues.

Water and Drainage Search

This search shows if the property is connected to mains water and drainage. 

It will show the location of the pipework providing the water supply and drainage, and confirm if you’d need permission from your water company to extend your home.

Land Registry Search

This obtains the most up-to-date Land Registry records for the property, through the title register and title plan. 

The title register confirms the legal owner of the property.

The title plan shows the legal boundary of the property. 

Land Registry Fees

These are the fees paid to update the land registry to reflect that there is a new owner.

These are usually around £50. 

Surveys

Surveys are carried out to assess the condition of a property. 

When buying a property with a mortgage, a basic valuation is usually done by the lender. This is to confirm that the property will provide sufficient security for the loan.

The Royal Institute of Chartered Surveyors (RICS) sets the standard for surveys, and they fall into 3 categories.

Level 1 Survey

Also known as a condition report.

It is a non-intrusive inspection, with the surveyor outlining the condition of the property based purely on a visual inspection. 

Defects are noted, but no advice on rectification is given.

They typically cost up to £150 to £400.

Level 2 Survey

Also known as Home Buyers Reports. 

A more detailed report of the condition of the property, with advice on maintenance that may be needed in the near future. 

A valuation can also be included, providing market valuation and an insurance reinstatement value.

They typically cost £250 to £750.

Level 3 Survey

Also known as building survey,

It provides detailed information on the property, including; construction type, how visual defects could be resolved, and advice on any potential hidden defects the property may have. 

They can cost anywhere from £600 to £3,000 depending on the type and size of property, its location and condition.

Buildings Insurance

This insures the structure of the building. 

Should the property have a serious event occur, such as structural damage, a fire or flood, an insurance claim could be made to reinstate it to a habitable state. 

Buildings insurance has a building sum insured. This is the potential maximum claim amount. The valuation from your bank should have provided a reinstatement value for the property. You should make sure that the building's sum insured is in line with the reinstatement value. 

Lenders will insist on having buildings insurance in place. This should be taken out on exchange of contracts. 

The cost of insurance is dependent on the property type, size, location and claims history.

Factors such as proximity to water or mines can have a big effect on the availability of insurance providers and price paid. 

If you are buying a leasehold property, the insurance may be included in the service charge. You should obtain a copy of this as early as possible to ensure there is sufficient cover for your lender.

You can also take out contents insurance, which covers your moveable items in the property. Some policies will even cover items when taken out of the house, such as mobile phones or jewellery.

Contingency

Owning a property can be a wonderful thing, especially as an owner occupier. You’re in charge of the space and can do as you please, within reason. The caveat to that benefit is that you are the one that has to repair things when they go wrong. 

While not a cost in the traditional sense, a contingency budget is something anyone purchasing a property should have in mind. We would recommend keeping  up  to 1% of the property value aside for a rainy day.

This can help you when unforeseen issues crop up, or items within the property reach the natural end of their life cycle.

Summary

When buying, you must remember that the purchase price isn’t all you need to budget for.

Stamp Duty Land Tax is usually the biggest additional cost, and can reach tens of thousands of pounds for larger purchases.

Aside from SDLT, you can expect costs, fees and taxes totalling £2,000 - £3,000 when buying.

You should also have a contingency fund in place, as once you’re the owner, you’re liable for all maintenance and repairs.

Buying a property is very exciting, just ensure that you’ve factored in all the potential costs before bidding!

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