In his Autumn Statement, given on 3 December 2014, Chancellor George Osborne announced changes to the Stamp Duty Land Tax (SDLT) system that will reduce the tax payable on the purchase of all but the highest-value properties.
Introduced in 2003, when house prices were significantly lower than they are today, SDLT was originally a ‘slab tax’, whereby the tax rate was payable on the whole value of the property. This meant that if a property exceeded a threshold, even by a small amount, the buyer would pay significantly more tax.
SDLT has been persistently criticised and accused of distorting house prices. Last year, London Central Portfolio found that the tax was suppressing prices by up to £10,000 – findings which it announced prior to the Chancellor’s 2013 Autumn Statement. Months before, the Tax Payer’s Alliance called for the abolition of SDLT altogether, claiming that it was an unfair ‘double tax’ that penalised young purchasers.
The new system
Under the new rules, the rate of tax payable at each threshold is higher, but the tax is only payable on the portion of the property value that falls within the threshold. Where previously a house worth £150,000 would be subject to 1% tax on the whole amount (£1,500), it would now be subject to 3% tax on the amount exceeding £125,000 (£750).
This new system, the government claims, will result in a tax cut for 98% of people who pay stamp duty; only those buying homes worth for £937,500 or higher will pay more.
This is likely to be a popular move with voters and its arrival less than half a year before the 2015 general election should come as no surprise. Interesting to note is the penalisation of high-worth homes; the reforms could be seen as a rival to Labour’s controversial ‘mansion tax’.
To read more about the new SDLT system, see HM Treasury’s factsheet “stamp duty reforms on residential property”.