On the 3rd of December 2014 the Autumn Statement was released, and amongst other things, it contained changes to the structure, rates and thresholds of Stamp Duty Land Tax (SDLT).
If you aren’t familiar with Stamp Duty, it is essentially a tax placed on legal documents, usually in the transfer of property. You’ll have to pay Stamp Duty if you purchase a property in the UK over a certain price. But the question is, what do these changes mean for would be homebuyers? In the following paragraphs we will breakdown the key modifications to the legislation to give you a much clearer understanding of what implications the overhaul will have on you and others.
The way thresholds work has changed
As things currently stand, once you go over the threshold that requires you to pay a higher level of tax, you’ll pay the tax on the entire value of the property, rather than just the amount that puts you over the threshold (like with income tax bands). As an example, on a home that is priced at £270,000, you’ll pay 3% on the total price, so £8,100. This is extremely unfair when you consider the threshold at which you only pay 1% is between £125,001 and £250,000.
Under the new changes, the thresholds will work much like income tax. You’ll get a tax-free allowance (up to £125,000) and then pay a different rate for each portion of the price.
The new rates are as follows:
· £0 to £125,000 – 0%
· £125,001 to £250,000 – 2%
· £250,001 to £925,000 – 5%
· £925,001 to £1.5million – 10%
· Over 1.5million – 12%
Due to the changes to the threshold amounts you could find yourself saving a small fortune, that you would have otherwise had to pay in Stamp Duty Land Tax, particularly if you are purchasing a property under £1million. Consequently, it could well be that estate agents find their phones ringing with people looking to find out exactly what the changes mean for them.
Who will this effect?
Essentially anyone who has exchanged contracts before the 4th of December but not yet completed the purchase will be able to have the choice of whether they wish to operate according to the new or previous Stamp Duty system. If you have completed your purchase but are yet to complete the necessary Stamp Duty forms, you’ll need to operate according the existing rules. If you have any questions about the latest changes to Stamp Duty, your local property consultant will be able to explain things face to face in greater detail.
Is this happening across the UK?
Yes, the changes to Stamp Duty that were announced on 3rd of December 2014 will be applicable across the United Kingdom. However, from April 2015, there is a possibility that the rates could change slightly in Scotland, but with the same principles that have been outlined above. The proposed Stamp Duty rates in Scotland are:
· Up to £135,000 – 0%
· £135,001 to £250,000 – 2%
· £250,001 to £1,000,000 – 10%
· Over £1,000,000 – 12%
As you can see, the rates are slightly different, but again, the principle in which they work will remain the same as the rest of the United Kingdom.
You should now have a clearer idea about the changes to Stamp Duty and how they could impact you if you are looking to buy a home in the future. If you are currently in the process of purchasing a property and have the choice to operate under the new or old system, make sure that you fully understand what both options mean. If you have any questions, your solicitor or estate agent should be happy to help.