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Autumn Statement 2014 - Major Reform Of Stamp Duty Land Tax For Residential Property

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3 December 2014

The Autumn Statement introduces a radical reform of Stamp Duty Land Tax (SDLT) which aims to improve the housing market.  From 4 December there will be a change to the calculation of SDLT on purchases of residential property to a progressive tax, much like the income tax system.  There will be no changes to the calculation for commercial 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 3% SDLT (£15,000) would apply to a house sold for £500,000 but 4% (£20,000) would be paid on a house exchanging hands for £500,001 ie an extra £5,000 of tax for £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 ie total SDLT of £15,000 whether the purchase price is £500,000 or £500,001.  This is a big improvement which is long overdue.

Those who have exchanged contracts before the new regime comes into force will be able to choose which regime to apply when they come to pay their SDLT at completion

The new progressive rates are:

0 - £125k 0%
£125k - £250k 2%
£250k - £925k 5%
£925k - £1.5m 10%
Above £1.5m 12%
 
The winners are those buying properties with a price tag of up to £937,000.  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 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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