Autumn Statement - Changes to Stamp Duty Land Tax from 4 December 2014

In his Autumn Statement to Parliament the Chancellor of the Exchequer, George Osborne, reformed Stamp Duty Land Tax (SDLT) in relation to residential property transactions.

The changes came into effect on 4 December 2014 but if contracts have been exchanged prior to the 4 December 2014 then, in most cases, purchasers will be able to decide whether to pay SDLT under the old rules or the new rules.

Old Rules

Under the previous system SDLT was calculated in bands, according to the value of the property. 

0% up to £125,000

1% £125,001-£250,000

3% £250,001- £500,000

4% £500,001- £1m

5% £1m-£2m

7% above £2m

Residential properties over £500,00 and registered to companies attracted tax at 15%

The downside of the tax bands was that it made a significant difference to the amount of tax paid if the value of the property tipped over into the next band by even a very small amount e.g a property purchase at £250,000 taxed at 1% attracting SDLT of £2,500 whereas a purchase at £250,001 would tip the value into the next band and would therefore attract tax at 3% on the full purchase price resulting in an increased SDLT liability of £7,500.

The argument against this system also considered the fact that the bands distorted the market; with prices bunched below the five thresholds.

New Rules

Rather than calculating the SDLT as a percentage of the full value of the property it will now be calculated as a percentage of the value of the property which falls within each band.  This system is akin to the way income tax is calculated.

From the 4 December 2014 purchasers will pay:

0% on the first £125,000

2% over £125,000-£250,000

5% over £250,000-£925,000

10% over £925,000- £1.5m

12% above £1.5m

For those people buying a property for £937,500 or less, their SDLT liability will reduce or remain the same under the new rules.

Properties above £937,500

For purchases of property over £937,500 the SDLT liability will increase.  For example, a purchase at £1m will now attract tax of £43,750 whereas under the old rules the SDLT liability would have been £40,000.

The higher the value of the property the greater the adjustment.

Contracts exchanged before 4 December 2014

Provided contracts have been exchanged before 4 December 2014 purchasers will have the choice to pay tax under the old rules or the new rules.  There are some exceptions to this transitional rule for example if the contract is varied after the 4 December 2014 then SDLT must be paid under the new rules.

Purchasers who have exchanged on or after the 4 December 2014 will have no option and must pay SDLT under the new rules.  In the majority of situations this will result in a tax reduction but for higher values purchases the SDLT liability will increase.

Posted on: 04/12/2014

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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