Chancellor Announces Changes to Stamp Duty
Chancellor Announces Changes to Stamp Duty
In his Autumn Statement, Chancellor George Osborne announced changes to stamp duty, which he says will see the amount payable reduced for 98% of homebuyers.
The changes came into effect from midnight on the 3rd December.
Replacing the “cliff edge” system
Stamp duty – officially called Stamp Duty Land Tax – is payable on the purchase of most houses, flats and other land and buildings throughout the UK.
The rules that were in existence meant that when a property was purchased, a buyer would pay a fixed percentage on the purchase price. This percentage would get successively higher as the price of the property increased. The property prices – and the corresponding percentages – were divided into strict bands, which meant if a property was sold for just £1 more than the upper limit of a band, it would be tipped into the next band up. A higher percentage tax would then be payable.
For example, if a property was sold for £250,001, it would fall outside of the £125,000 – £250,000 band, where 1% of the purchase price in stamp duty was payable. Instead, it would be pushed into the £250,000 – £500,000 band, where stamp duty at 3% was then payable on the whole purchase price. Although only a slightly higher purchase price, the increasing percentage meant that more than £5,000 more stamp duty would be due under the higher band.
The operation of the tax had been often described as a “cliff edge” system, where buyers would fall over the edge of a band and be required to pay significantly more. However, the reforms announced in the Autumn Statement will prevent buyers from being hit by sudden jumps in stamp duty.
Introduction of a graduated rate
In announcing the reform to stamp duty, the chancellor told MPs in the House of Commons that it was time to change “this badly-designed tax on aspiration”. His sentiment has been long mirrored in the housing industry, with critics – including lenders, estate agents and property developers – commenting that the system was archaic, punitive and damaging to the property market. Lucian Cook, head of residential sales at Savills, said the previous system was particularly damaging to first time buyers and second steppers, with the tax making it “harder for them to raise the deposit needed to get the mortgage they require to get on or trade up the housing ladder”.
The reforms will now see up to 98% of homebuyers paying less stamp duty than they would have paid under the old system. As of 4th December 2014, buyers will no longer be hit with a “slab tax”, but will pay stamp duty in chunks, thus avoiding the “cliff edge” effect. The new rates of stamp duty will now only apply to the amount of the purchase price that falls within each particular band. The percentage payable on the purchase price has increased in some bands, but the graduated rate will still mean that buyers will save money.
To take the aforementioned example, under the new system if a house is purchased for £250,001, then £250,000 of that will be taxed at 2% in accordance with the £125,001-£250,000 band. Only the £1 that falls into the £250,001 to £925,000 band will be charged at that band’s 5% rate.
However, the reform is only good news for buyers of properties that are less than £937,000. Where the purchase price is higher than that, the increased percentage rates are likely to result in a higher amount of stamp duty payable.
Who will be affected?
With the changes to be implemented immediately, any new purchases of residential homes across England, Scotland and Wales will be governed by the new rules.
A purchase that has completed by the 4th December will still be governed by the old laws, with the pre-existing rates of stamp duty due. However, in a transaction where contracts have been exchanged before 4th December, with completion set to take place after that date, the buyer will be given a choice as to which system they would prefer to apply. The HMRC has an online calculator where the amount payable can be gauged.
Experienced property conveyancing solicitors
At IBB Solicitors, our residential conveyancing team is the largest in West London and surrounding Home Counties with a vast breadth and depth of experience in bespoke as well as standard conveyancing transactions. Our residential conveyancing solicitors provide professional legal advice on all aspects of buying and selling property.
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IBB’s team of property solicitors can advise on all aspects of buying, selling and mortgaging property. We are always happy to speak to you about the progress of your sale/purchase on the telephone at any time.
For more information or advice from our residential conveyancing solicitors in Buckinghamshire, call us today on 01494 790013 or 01494 790071 or email email@example.com .