Stamp duty reform ‘to save majority of homebuyers' money’


Stamp duty reform ‘to save majority of homebuyers' money’

Today’s Autumn Statement has revealed that stamp duty land tax (SDLT) is to be overhauled from midnight tonight (December 3rd).

Chancellor George Osborne, speaking in his last Autumn Statement before next year’s General Election, revealed he will introduce sweeping reforms to the tax, which will result in the overwhelming majority of buyers saving money.

What is SDLT?

It is a tax applied to the sale of every residential property in England and Wales. Upon completion of the sale, buyers are charged as tax a percentage of the sum they have agreed to purchase the property for.

Stamp duty has been in place for hundreds of years, but has long been criticised for being “unfair” to the average home buyer. Some critics also claim it slows down the property market, particularly among first-time buyers. It was in an effort to help first-time buyers back on to the property ladder that the former Labour government made this group exempt from paying the tax between March 2010 and March 2012 – as long as they were purchasing a property worth less than £250,000.

Out with the old, in with the new

Up until now, the SDLT system has been best described as a ‘slab system’. This means that there were strict thresholds in place stating how much tax buyers must pay depending on how much they bought their homes for. The thresholds were:

Purchase price Stamp duty rate
Up to £125,000 0%
Over £125,000 to £250,000 1%
Over £250,000 to £500,000 3%
Over £500,000 to £1 million           4%
Over £1 million to £2 million  5%
Over £2 million  7%

So, if you were buying a property for £250,000, you would pay 1% of this price on top to go towards the tax – which worked out as £2,500. However, if you paid just £1 more (£250,001), you would have to fork out 3%, or £7,500, for the tax – so that extra £1 would cost you dearly.

Slab system example:

House purchase price: £260,000

Stamp duty charged: (3%) £7,800

Purchase price Stamp duty rate
Up to £125,000   0%
Over £125,000 to £250,000            2%
Over £250,000 to £925,000 5%
Over £925,000 to £1.5 million       10%
Over £1.5 million 12%

The new SDLT system is being described as ‘progressive’. The thresholds introduced by the Chancellor are now: 

Most importantly, the amount of stamp duty charged will differ case by case and will depend on the portion of the property purchase price that falls into each different rate band. As a result, buyers should find they are no longer charged a fortune for paying a penny more than the closest stamp duty threshold, and sellers may feel less as though they have to price their property below what they think its value is in order to keep it below a certain threshold.

Progressive system example:

House purchase price: £260,000

Stamp duty charged: (0% on first £125,000, 2% on £125,001 to £250,000, and 5% on £250,001 to £260,000): approx. £2,999.99

Saving: £4,800

Cutting costs

Osborne said that “98 per cent” of buyers across the UK will be better off as a result of the changes, while 91 per cent of buyers in London – where property prices are renowned for being higher – will benefit. And by increasing the amount paid by people purchasing the most expensive properties on the market, money will still be raised for the economy.

Most importantly, it could make things easier for buyers when they are working out how much they can afford to spend on a new home. By potentially reducing the amount of SDLT they’re charged, they may be able to afford their dream home, rather than walk away from it.