HISTORIC CHANGES TO ONE OF THE UK’S “MOST DAMAGING” TAXES – STAMP DUTY LAND TAX

As of the 4th of December 2014, the Stamp Duty Land Tax, as we know it, changed drastically. The “new and improved” rates were ushered in with confidence especially by Mr George Osbourne who described the previous scheme of taxation as the “most damaging” stated that the changes ‘would cut stamp duty for 98% of house buyers’.

So what does this mean for house buyers?
Following this major reform, most home buyers will be paying a lot less than they would have under the old rule however home buyers purchasing properties above £937,000.00 would suffer a major hit by this change as wealthy purchasers could be paying an extra £53,750 or more on properties worth more than £2million.

It is important to note that these changes will apply to only to residential properties completed on or after 4 December 2014. Nonetheless, for contracts which have been exchanged on or before 3 December 2014, and completion is on 4th December or at a later date, you have a choice whether to use the old or the new rules.
As it stands, homebuyers will be paying much less under the new rate as they will only be charged the different rates depending on the portion of the purchase price that falls within each rate band. However for properties above £937,000, a major loss will be suffered.

Below are the previous and new rates for Residential Stamp Duty Land Tax:

OLD RULE
Up to £125,000 Zero
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 from 22 March 2012 7%
Over £2 million (purchased by certain persons, including corporate bodies) from 21 March 2012 15%

Example 1: A buyer exchanges contracts on 1st December 2014, with completion expected to be 3rd December 2014 for the purchase of a house for £251,000. The SDLT is calculated as follows:
3% on the £251,000 = £7,530
Total SDLT payable = £7,530

Example 2: A buyer exchanges contracts on 1st December 2014, with completion expected to be 3rd December 2014 for the purchase of a house for £950,000. The SDLT is calculated as follows:
4% on the £950,000 = £38,000
Total SDLT payable = £38,000

NEW RULES
Up to £125,000 Zero
Over £125,000 – £250,000 2%
Over £250,000 – £925,000 5%
Over £925,000 – £1,500,000 10%
Over £1,500,000 12%

Example 1: A buyer exchanges contracts on 5th December 2014, with completion expected to be anytime after this date for the purchase of a house for £251,000. The SDLT is calculated as follows:
0% on the first £125,000 = £0
2% on the next £125,000 = £2,500
5% on the final £1,000 = £50
Total SDLT payable = £2,550 (Saving you £4,980)

Example 2: A buyer exchanges contracts on 5th December 2014, with completion expected to be anytime after this date for the purchase of a house for £950,000. The SDLT is calculated as follows:
0% on the first £125,000 = £0
2% on anything above £125,000 and up to £250,000 = £2,500
5% on anything above £250,000 and up to £925,000 = £33,750
10% on the final £25,000 = £2,500
Total SDLT payable = £38,750 (You pay £750 more)

To conclude, it is yet to be seen the impact this change would have on the property market however it is very likely to have the effect of causing a lot of people to engage in tax avoidance schemes.

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