In a surprise announcement for the property industry and home buyers, Chancellor George Osborne has abolished the “slab” rate of Stamp Duty Land Tax (“SDLT”).
From midnight tonight new rates of tax will only apply on the purchase price above the bands of tax.
Mr & Mrs A are buying their first home for £200,000.
There is no SDLT to pay below £125,000. Between £125,000 and £250,000, 1% tax was paid on the entire purchase price.
£200,000 x 1% = £2,000
Mr B & Ms C are buying a new home for £375,000. Between £250,000 and £500,000, 3% tax was paid on the entire purchase price.
£375,000 x 3% = £11,250
SDLT is now only paid on the purchase price above £125,000 at an increased rate of 2%.
£200,000 - £125,000 = £75,000
£75,000 x 2% = £1,500 saving £500
SDLT is paid on the purchase price above £125,000 at 2%, and above £250,000 at 5%.
£125,000 at 2% tax = £2,500
(£375,000 - £250,000 = £125,000) £125,000 at 5% tax = £6250
Total tax: £8,750 saving £2,500
This is great news for first time buyers, and for the majority of buyers outside of London, who will see significantly reduced tax bills on purchasing their homes. However, when buying properties above £925,000 the rate of tax starts to rise steeply and purchasers of more expensive homes will be worse off as a result of these reforms.
One unintended consequence of this change could be that professional landlords will seek to buy cheaper properties to benefit from cheaper SDLT, further restricting the choice of housing for first time buyers. In any case, this should provide a small boost for the property market leading into 2015.
If you are considering buying a new home, whether you are a first time buyer or an experienced property developer, contact us on 01392 344800 or use the contact us page for a quote from a solicitor with local experience and legal expertise.