The UK housing market could be given a boost by a major shake-up of the way that stamp duty on residential property is charged.
The government says that the move, announced in Chancellor George Osborne’s Autumn Statement on 3 December, will cut stamp duty for 98 per cent of people who pay it.
Stamp duty has been charged at a single slab rate on the whole purchase price of a home, resulting in big jumps in the tax levied when the value of a property tipped into a new band. The system meant that the buyer of a property worth £250,000 paid £2,500 in tax but if the purchase price was £1 more, the stamp duty bill would soar to £7,500.
Mr Osborne said: “I am announcing a complete reform of a tax that has been described as one of our worst-designed and most damaging of all taxes. In future each rate will only apply to the part of the property price that falls within that band – like income tax.” The new system will mean:
- no tax on the first £125,000 paid
- two per cent on the portion up to £250,000
- five per cent on the portion up to £925,000
- ten per cent on the portion up to £1.5 million
- 12 per cent on everything above £1.5 million.
Mr Osborne said: “If you buy an averagely priced home of £275,000, you will pay £4,500 less in tax. Only homes that cost just over £937,000 will see their stamp duty bill go up under this system – gradually to start with, rising to more substantial sums for the most expensive homes.
“A £5 million pound house will see its stamp duty rise from £350,000 to £514,000 – but of course, this is a charge that is only paid once, when the property is bought.”
The changes took effect from 4 December and will apply in Scotland until April 2015, when a new Land and Buildings Transaction Tax will replace stamp duty.
Clare Butcher, an associate solicitor at Palmers specialising in residential property, said: “Organisations including the Building Societies Association and Nationwide had called for stamp duty reform in the Autumn Statement, to better reflect rising house prices and make the system fairer.
“While the stamp duty bill is unlikely to be a deal-breaker in a property purchase, the changes will reduce costs and make it easier for buyers to raise cash deposits, which could help them get their foot on the housing ladder or move up it.
“Whatever the value of the property you are buying, experienced property solicitors will provide expert support throughout the purchase process and help to protect your interests. At Palmers, we offer a fast and cost-efficient conveyancing service, provided by a team that will provide practical, proactive support throughout the process. For more information, please contact our Property team.”