IN HIS last Autumn Statement before the General Election in 2015, the Chancellor of the Exchequer announced sweeping changes in Stamp Duty Land Tax (SDLT) that will benefit almost everyone and cost the government an estimated £4.5billion over the next 5 years. So what’s changed?
Until 4th December 2014
Stamp Duty used to be calculated based on particular value bands. This meant that properties valued between:
- £125,001 and £250,000 would pay 1 percent
- £250,001 and £500,000 would pay 3 percent
- £500,001 and £1,000,000 would pay 4 percent
- £1,000,001 and £2,000,000 would pay 5 percent
Properties valued at £125,000 or less incurred zero Stamp Duty and those valued at more than £2,000,000 would pay 7 percent.
What made these bands so unpopular is the fact that Stamp Duty rate was payable on the full amount, therefore the amount of tax payable could suddenly jump up when a property was valued over a certain threshold. For instance, a transaction at £250,000 would have incurred Stamp Duty of 1 percent, or £2,500, yet a transaction of £251,000 would have incurred Stamp Duty at 3 percent, or £7,350.
From December 4th 2014
Stamp Duty will now be incurred in what the government likes to call a “progressive” way. There are still Stamp Duty Land Tax bands, but you will only pay the applicable rate on the portion of the property value that lies within any particular band. The first £125,000 is now free of tax for all purchases. All transactions of less than £937,500 will incur less Stamp Duty than they used to.
The new bands are as follows:
- Up to £125,000 – no Stamp Duty
- 2 percent between £125,001 and £250,000
- 5 percent between £250,001 and £925,000
- 10 percent between £925,001 and £1,500,000
- 12 percent on anything higher
The rates per band have gone up, but this should not be taken at face value because the way the tax is calculated has changed.
Jack is a first time buyer purchasing a property at £177,000. He pays no SDLT on the first £125,000, because this is now “free”. The remaining £52,000 lies within the band at which 2 percent is charged so Jack pays 2 percent of this, or £1,040. Before the changes, Jack would have paid £1,770.
Hillary is purchasing a property for £1,000,000. As with Jack in the previous example, she pays no SDLT on the first £125,000. As her purchase traverses 4 different SDLT bands, we have to look at the portion of the purchase that lies within each band. Hillary will pay 2 percent on everything between £125,001 and £250,000. This is £2,500. She will pay 5 percent on everything between £250,001 and £925,000. This works out at £33,750. Finally, Hillary will pay 10 percent on everything between £925,001 and £1,000,000, which is £7,500. To find the payable SDLT, simply add up the tax payable for each band, which comes to £43,750. This is £3,750 more than she would have paid under the old system.
If you require any Stamp Duty or other property advice, please contact one of our experts who will be delighted to help you.