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New stamp duty rules. Who wins and who loses?

15th January 2015

With the general election of course furthest from his mind, George Osborne played the unlikely role of Father Christmas with a view to pleasing the electorate with his reform of the Stamp Duty Land Tax. As of 4th December 2014 a new progressive regime was introduced to replace the old punitive slab system. But have the changes helped the buyer, and financially who has won and who has lost?

Previously stamp duty land tax was calculated in “slabs”. For instance a buyer would pay 1% in tax on a property worth between £125,000 and £250,000 but would pay 3% in tax on a property worth between £251,000 and £500,000.  Under the old regime someone buying a property for one pound more than £250,000 would pay tax of £7,500, some three times more than someone buying a property for a pound less at £250,000 (where the tax payable was £2,500). Under the new rules however, as with Income tax, a buyer will pay the rate of tax on that part of the property price within the each tax band.

Let’s take two examples of how the changes might affect a buyer.  Example A, a buyer purchases a property for £305,000.  Under the old regime that person would have paid tax at 3% of this sum, equating to £9,150.  However, under the new regime the same buyer of the same property will pay £5,250, saving them a sizeable £3,900.  It is easy to do the sums – the buyer will not pay any tax on the first £125,000;  they will then pay 2% on the value between £125,000 and £250,000 (£2,500.00); and 5% on the value between £250,001 and £305,000 (£2,750.00).

However, the new rules are not a win, win for everyone. For anyone purchasing above £937,000 the new rules work against them. They will pay more than they would have under the old rules.  For example, the purchase of a £2,000,000 property would have attracted a tax of £100,000. Now with tax being applied at 10% between ££925,000 and £1,500,000 and 12% above £1,500,000, the buyer would pay in total a very sizeable £153,750. This is a huge increase of £53,750.  It seems even Father Christmas has a limit to his generosity.

 

Nicholas Smith, partner and head of residential property

George Ide
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