Tax on a House Purchased at Auction

When you buy a house at auction there’s a good possibility you will bag yourself a decent discount on the property. Lenders and current owners want a quick sale and will more than likely add a discount to encourage a quick sale. This is what had made so many people eager to find a property auction when looking to purchase a new home in recent years.

When you buy a property at auction you will not pay any other tax than you would when buying conventionally. However it is important that you familiarise yourself with what those taxes are.

Stamp Duty

Stamp duty is the tax that you pay when buying any house. It is a government tax on effectively all paper work that needs to be completed in order for the sale to go through. This tax varies depending on the price of the property.

At the moment in the UK homebuyers will pay no stamp duty on a property worth £125,000 or less. If the house is worth between £125,000 and £250,000 the homebuyer will have to pay a stamp duty of 1% of the property price. If the property is worth between £250,000 and £500,000 the homebuyer will have to pay 3% of the value as stamp duty. Finally if the property is worth over £500,000 the homebuyer must may 4% stamp duty tax on it.

The name stamp duty comes from the origins of the tax when the forms and paperwork actually had to be ‘stamped’ as a seal of approval. Although the forms are no longer ‘stamped’ the name stamp duty remains.

Stamp duty has been heavily criticised by the housing industry and the general public. Homebuyers and especially first-time buyers have trouble enough without having to pay unnecessary taxes to the government. However at present there is no way to avoid it. You have to pay the tax and this is the same whether you buy the property at auction or in the conventional way.

Capital Gains Tax

A lot of people buy properties at auction with the intention of modernising and developing them and then selling them on. If this is the case the buyer will also be faced with another tax – although not until they come to sell the new property to a new owner. The tax is Capital Gains Tax or CGT. This is a tax put upon the sale of property for ‘capital gain’. You must pay this tax if you intentionally bought the house to sell on. You do not have to pay this tax if you have lived in the home and that was the intention for buying it.

Buying a property is a serious business, make sure you do all your research before you embark on the sale. You do not want to find yourself paying taxes you didn’t realise you had to pay. Remember taxes like Stamp Duty and Capital Gains Tax MUST be paid if you fit the criteria. There is no point trying to avoid paying the money.