The government has unveiled plans to reform the way stamp duty is charged.
Instead of the slab structure at the current rate, stamp duty will be a progressive tax, more in line with income tax. There will be no tax paid on the first £125,000, 2% on the amount above that up to £250,000 then 5% on the next amount up to £925,000 and then 10% on amounts above that up to £1.5 million then 12% on everything above that.
The changes mean that those buying homes worth up to £937,500 will pay less stamp duty. But above this value, buyers will be paying more. There is an anomaly between £1,000,001 and £1.124,990 where under the new regime you will still pay less tax.
|Purchase price of property||Rate paid on part of price within each band|
|Up to £125,000||0%|
|Over £125,000 and up to £250,000||2%|
|Over £250,000 and up to £925,000||5%|
|Over £925,00 and up to £1,500,000||10%|
To work out how much Stamp Duty Land Tax you may have to pay, use the HMRC Land Tax Calculator.
The new charging structure means those facing a higher bill under the new rules need to exchange before midnight tonight to take advantage of the current 5% rate for £1m+ and 7% rate for £2m+ properties.
Those who have exchanged but not completed before Dec 4th on a home worth under £937,500 who might benefit from a smaller bill can opt which regime they want to choose.
Liam Bailey, Global Head of Research comments: “Removing the slab structure of the current form of stamp duty will remove distortions in the market. There will be less bunching of values below the different thresholds. However, the new higher rates of stamp duty at the top of the market could act to reduce transaction volumes here and actually lower overall tax take more than currently forecast. Over the last year alone transactions of £1m+ homes have accounted for nearly 30% of all Stamp Duty revenue.”
In fact, the government is expecting to take a hit to its stamp duty receipts as a result of the measure. Last year it collected £6.4 billion in stamp duty on house sales. It expects overall stamp duty receipts to rise, but says that the measure will cost it £760 million and £840 million in 2016-17.
Grainne Gilmore, Head of UK Residential Research, said: “A more progressive form of tax means that many more first-time buyers and home movers will be paying less tax, which could serve to ease progression up and down the property ladder. As this measure, coupled with Help To Buy, make it more affordable to buy a home, policymakers now need to turn their attention to supply – making sure there are enough new homes to meet demand across the country.”
Tom Bill, Head of London Residential Research, said: “London already contributes 42% of stamp duty revenue in England and Wales and properties valued at more than £1 million in the capital account for 21% of the overall tax take. The new rates are likely to increase this contribution and disproportionately affect housing market activity in a city that is making a significant contribution to the country’s economic recovery.”
The new structure will apply to people buying homes in Scotland until 31 March 2015. After this date, the Scottish Government’s Land and Buildings Transaction Tax will replace SDLT in Scotland. The associated reduction in the Scottish Government’s block grant will be around £80 million smaller in 2015-16 as a result of the changes in SDLT.
James Prewett, Head of Regional Farms at Knight Frank, said the majority of farmland transactions will not be affected because they will still qualify for the non-residential and mixed-use rate of SDLT, which is capped at 4% for properties worth over £500,000.
However, for those selling smaller lifestyle farms or estates where much of the value is accounted for by residential property, it will be even more important to take professional advice to see if the sale can be structured to ensure it qualifies for the mixed-use rate.
“It will be worth paying particular attention when lotting farms as the tax bill under the new system could be much higher. You also want to make sure your accountant is confident putting a robust case to your District Valuer.”
The SDLT on a £5m residential sale will now be almost £515,000, compared with £350,000 under the former system. If the sale qualifies as a mixed-use transaction the bill will be £200,000.
Read more on the impact of the Autumn Statement: We examine the other changes that affect residential property – namely the new ATED charges, our colleague in the Rural Research Andrew Shirley has advised farmers to take advice about land sales in light of the announcement and James Roberts, chief economist at Knight Frank, looks at the Budget impact on commercial property.