George Osborne’s Autumn Statement has brought about the end of the frequently criticised ‘slab-style’ Stamp Duty system, introducing a new system more akin to income tax. The result will be stamp duty savings for all but the highest value 2% of the market.
We have previously commented upon the existing, inflexible rules and the potential effects of reducing the obligation. The previous structure of slapping a single rate of tax on the whole value of the property dependent on its value falling within a set scale structure meant that there were sudden jumps in taxation as the purchase price slipped above the next threshold – a perfect example of the economic concept of ‘bracket creep’.
For example, someone buying a home for £250,000 would have previously paid £2,500, or 1%, in stamp duty calculated on the whole purchase price at the prevalent band rate. If the price however was £250,001 this would increase to £7,500.03, as they would then have paid the next band rate of 3% on the whole purchase price.
From midnight on 3rd December, the new rates of stamp duty will only apply to the amount of the purchase price that falls within the particular duty band. In other words, someone buying a house under the new system for £250,000 will pay nothing on the first £125,000 which is exempt. Between £125,001 and £250,000 will be a 2% slice giving £2,500. This will mean a total tax of £2,500.
We’ve included the Treasury’s explanatory diagram at the bottom of this article to provide some further examples.
The % taxation of the new rates has actually increased, but the overall charge is likely to be lower for the majority of property purchasers – until a property is purchased at a more expensive price level and the adverse affects of the higher taxation rate counteract the advantageous changes.
The new rates will be:-
- Up to £125,000 : 0%
- £125,001 to £250,000 : 2%
- £250,001 to £925,000 : 5%
- £925,001 to £1.5m : 10%
- Above £1.5m : 12%
Someone buying a family home for an average price in England and Wales will now pay £4,500 less in stamp duty. The new system will also smooth out the steps – or sudden jumps – in existing stamp duty thresholds.
The system in Scotland will be slightly different with the imposition of the Land and Buildings Transaction Tax (LBTT) from 1st April 2015. The new Stamp Duty formula and system will work in Scotland until this date.
The Government calculator for Stamp Duty is accessed via this link:
Whilst new rules came in on the 4th of December, any property already exchanged and not completed can choose which rules to follow on the tax, which becomes payable on completion.
For the coalition government, much has been made of the advantages of this policy over Labour’s favoured ‘mansion tax’ and it could be that Mr Osborne’s stamp duty changes, which have been generally well received, have now ‘blown this policy out of the water’.
To emphasise the point, George Osborne during his Autumn Statement commented:
“The system I introduce today replaces a badly designed system that has distorted our housing market for decades.
“It reduces the stamp taxes for 98% of people who pay them in this country.
“It increases the taxes on the most expensive 2% of homes, but only asks people to pay that tax when they buy the house and they have the money. And it does not involve a revaluation of hundreds of thousands of homes in this country.
“Today I’m cutting stamp duty for millions of homebuyers in this country. 98% will be better off.
“It is a fair, workable, lasting reform to the taxation of housing.”
SRJ / LCB 10.12.14