Chartered Accountants and Professional Business Advisers

Stamp Duty Land Tax

In his pre-election autumn statement today, the Chancellor George Osborne announced a major change to the Stamp Duty Land Tax regime for residential property.

The old slab based system

The rate of tax charged depended on the value of the transaction as follows:

Value of PropertySDLT
Up to £125,0000%
£125,001 to £250,0001%
£250,001 to £500,0003%
£500,001 to £1,000,0004%
£1,000,001 to £2,000,0005%
£2,000,001 and over7%

The rates shown above applied to the whole of the transaction value. This resulted in a sudden jump in the duty payable on moving from one band to the next. For example, £15,000 of duty was payable in relation to a £500,000 purchase, but an increase in the consideration of just £1 resulted in a jump in the SDLT of a third – to more than £20,000.

New graduated bands

Under the new rules, the tax rate applies only to the part of the consideration in that band. So the additional duty payable as a result of increasing consideration by £1 above £500,000 would be £0.05 rather than £5,000 as previously.

However, the rates from £250,000 are being increased and the new top rate will be 12%. The previous highest rate of 7% was introduced lass than a year ago. Prior to then, it was 5%.

Value of PropertySDLT
Up to £125,0000%
£125,001 to £250,0002%
£250,001 to £925,0005%
£925,001 to £1,500,00010%
£1,500,001 and over12%

Winners and losers

At the lower value levels there are some points where the duty will now be less than half what it was – notably just over the old £125,000 and £250,000 thresholds. A buyer paying £300,000 will now incur SDLT of £5,000 rather than £9,000 – a significant saving at that level.

HMRC announced that the cut off point below which buyers would always be better off under the new regime is £937,500. However, this isn’t quite right. Between £937,500 and £1m the new regime is more expensive but at the £1m point the sudden step under the old rules means that the old regime cost more until £1,125,000, above which level the new rules are always more expensive.

Implementation timetable

The new rules will automatically apply to exchanges of contract after 3 December 2014. Those who exchanged on or before 3 December but who complete later will be able to choose which method of calculating the SDLT liability to apply.

Comparison graph

The graph shows the SDLT payable for a given purchase price under the old and new calculation methods.

Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered.

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