Stamp Duty Land Tax – Good News For Property Buyers
Stamp Duty Land Tax or SDLT is charged on the acquisition of an interest in land. It is paid by purchasers, calculated with reference to the purchase price of the property. The most contentious aspect of the tax has been the application of a single rate to the whole property purchase price with the rates increasing on each property value band. The effect is a stepped tax, with the biggest step occurring around the average price of a home. Under the old rules, SDLT on a property costing £250,000 was charged at 1% of the whole value, ie £2,500. If the property cost was £250,001, the SDLT would be charged at 3%, ie £7,500.
The effect of this rule in the housing market was to create an uneven distribution of property prices with a disproportionately high number of transactions below each rate threshold.
With effect from 4 December 2014, the new proposals abolish the slab tax approach and introduce graduated rates which apply only to the part of the property purchase price that falls within each band. Effectively, this removes ‘dead zones’ just above each of the bands where now property buyers will only pay a portion of the property value above each band. It will therefore be applied in the same way as different rates of income tax are applied to each band of income and should encourage flexibility on pricing at the rate thresholds:
Purchase Price / Lease Premium Or Transfer Value
SDLT RATE FROM 4 DECEMBER 2014
- Up to £125,000: Zero
- £125,001–£250,000: 2%
- £250,001–£925,000: 5%
- £925,001–£1.5m: 10%
- £1.5m+: 12%
Importantly – Since the change only applies to residential property transactions, in effect two separate regimes will now apply to residential and non-residential (commercial) properties.
The old stamp duty land tax (SDLT) regime will continue to operate for commercial property.
Where contracts have been exchanged on or before 3 December 2014, and the transaction is completed on 4 December or later, taxpayers can choose whether to follow the new or the old rules.
Who Will Benefit?
Industry sources suggest that around 98% of buyers will benefit, only those above £1.5M will not.
The changes could particularly benefit first time buyers, particularly younger buyers where cash is in short supply. Also, it potentially provides a boost to the government’s ‘help to buy’ scheme beneficial for those just looking to get on the property ladder.
What Else Could It Affect?
Could it boost the market? Possibly. It provides an opportunity for sales strategies that undercut the new pricing bands. However, that may only increase the emphasis on the shortages of properties in the housing market, doing little to improve supply.
All round, the changes in the Stamp Duty Land Tax appears to have been received positively as does any scheme that puts more money in to people’s pockets.