The Chancellor's rabbit out of the hat in the 2014 Autumn Statement was a radical reform of Stamp Duty Land Tax (SDLT) with the aim of boosting the housing market. From 4 December the calculation of SDLT on purchases of residential property changed to a progressive tax, much like the income tax system. There were no changes to the calculation of commercial or mixed-use property.
The old system was a 'cliff edge' approach such that once the house price tipped over into the next band the new rate applied to the whole price. For example, a house sold for £500,000 would have had a SDLT rate of 3% costing £15,000, but if it exchanged hands for £500,001 the 4% rate would have applied costing the purchaser £20,000, i.e. an extra £5,000 of tax for a £1 increase in price!
With the same example, under the new system, there will be no tax payable on the first £125,000, 2% on the next £125,000 and 5% on the remaining £250,000 i.e. total SDLT of £15,000 whether the purchase price is £500,000 or £500,001. This is a big improvement and a very welcome announcement for most. It should certainly help with houses valued just over the old bands of £250,000 and £500,000.
The new progressive rates are:
| 0 - £125k | 0% |
| £125k - £250k | 2% |
| £250k - £925k | 5% |
| £925k - £1.5m | 10% |
| Above £1.5m | 12% |
The majority of people purchasing a residential property should benefit from the new system, up to a price tag of £937,000, which the Chancellor estimated should cover 98% of property purchases. Those buying houses at a higher price than this will pay an increased amount of SDLT. The tax on a £2.1m property would have been £147,000 under the old system, whereas £165,750 of SDLT will now be payable.
Overall, however, it is a tax giveaway. It is forecast to save house-buyers about £800m of SDLT per year. This should be a boost for the residential property market and will be a big help for first-time buyers.
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