Stamp Duty Land Tax changes – how might that affect you?

The Chancellor’s announcement on Stamp Duty Land Tax levels is a positive and welcome move. I welcome the very short notice which meant that no-one was left trying to either hurry up or stall a current transaction to take advantage of the changes. This gave a whole cohort of homebuyers a happy Christmas and the cash in their pockets to spend on those carpets and curtains, super fridge or three piece suite that they thought they could not afford.

We now have a hybrid system for a period for those people who had exchanged contracts on or before 3rd December but have yet to complete their purchase, whereby they can opt for the rule they wish to follow. I am sure that everyone below the £1m purchase price will choose the new rules and those above will stay with the old. The good news for buyers of farms or mixed use properties is that the rules have not changed for them. People who are paying the price on the old band-change figures won’t, sadly, feel any difference whichever rule they follow.

So, looking forward, how about the magic thresholds of £125,000, £250,000, £500,000 and £1m? Suddenly the cliff has gone and gaps in the sales prices that existed, for instance between £250,000 and £275,000 and £500,000 and £525,000, are open for business again. To go one pound over those tipping points in the past could cost you thousands of pounds in tax under the ‘slab’ method of calculating tax.

As a graded tax you pay the rates only on the amount you spend in each band. Thus a property at £385,000 was at 3% on the whole, paying £11,550, but now you will be paying £9,250 because there is no tax on the first £125,000 (£0), 2% on the next £125,000 (£2,500) and 5% on the final £135,000 (£6,750).

As a Lawyer who recalls this graded tax approach in the old Stamp Duty, I know that it complicates the maths but these days computers can assist. If you want to check what the duty is on your purchase, Revenue & Customs have provided a calculator.

As ever, there are some exceptions to the rules. For instance, if you have a company, especially a letting company, or you are a developer, you will have to check which rules apply. New leases at a premium of over £125,000 or tenancies with high rents also need to check the rate they will have to pay.

I am delighted that lower end home buyers have been given a boost, although it is bound to even itself out when everyone is used to the new figures. The real long term benefit I see is the removal of the artificial cliffs in house prices caused by the ‘slab’ approach, allowing buyers and sellers a more mobile negotiating basis and flexible pricing.

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