Chancellor George Osborne promised his overhaul of stamp duty will cut the tax bill for 98 per cent of house purchasers, with from midnight tonight purchasers being subject to graduated rather than “slab” taxes on property purchase.
Under the old rules, people had to pay tax at a single rate on the entire property price. Tax was set at 1 per cent on properties over £125,000, 3 per cent over £250,000, 4 per cent over £500,000, 5 per cent over £1m, and 7 per cent over £2m.
This meant if you bought a house for £185,000, you would have had to pay 1 per cent tax on the full amount – a total of £1,850.
In his fifth Autumn statement, Mr Osborne announced buyers will now only pay the rate of tax on the part of the property price within each tax band, much in the same way that income tax is applied.
There will be no tax payable for houses worth less than £125,000, 2 per cent on the portion of any value above this and up to £250,000, 5 per cent on the next portion up to £925,000, 10 per cent up to £1.5m, and 12 per cent thereafter.
Under the new rules, for the same £185,000 property you’ll pay nothing on the first £125,000 and 2 per cent on the remaining £60,000. This works out as £1,200, a saving of £650.
Observers will be keenly watching the affects of this on a cooling property market and in particular the effect on valuations, after a period in which inflation had slowed amid regulatory intervention and claims of a bubble.
Some will argue the new measure could even increase property prices in some areas, as vendors of properties around existing bands up prices rather than hold them below a threshold.
The reform has been long awaited and was widely called for before this year’s Budget, with some economists even claiming shifts in pricing around thresholds could offset the tax loss to the Treasury.
For those who have already exchanged on a property, there will be a choice about whether to use the old or new rules after they come into effect from midnight tonight.
For those completing a sale on and after 4 December 2014, if they exchange and complete (or in Scotland, settle) their home purchase on or after 4 December they will pay stamp duty under the new rules.
For sales completed before the 4 December 2014, if a stamp duty return has yet to be filed the purchaser will still have to pay stamp duty under the old rules.
For those who have exchanged their contract before 4 December 2014, but complete on or after that date you’ll be able to choose whether the old or new rules apply, in the majority of cases Mr Osborne said purchasers will pay less tax under the new rules.
FTAdviser sister newspaper the Financial Times reported this morning that Mr Osborne would reform the structure of stamp duty.
Click here to read what Mr Osborne said during today’s (3 December) Autumn statement.
emma.hughes@ft.com
