As of December 4th 2014, 98% of homebuyers that have not already exchanged contracts will benefit from significant reductions in stamp duty land tax, while the remaining 2% will see significant increases for properties over £937,500. Anyone who has already exchanged contracts may have the choice to be considered under new or old rules.
HMRC make this announcement to the surprise of many, in attempts to make the taxing system fairer for those buying low and mid-range properties. Social media seems to be awash with happy homebuyers who have woken up to find out their tax bill is less than half expected and they have some extra cash in their pockets, where the more affluent may be shocked to find their tax bills could have soared!
The main changes are seen in the way in which SDLT is calculated. Under the old rules if your property exceeded a threshold you paid single rate tax on the whole value of the property. Under the new rules, SDLT works incrementally, in the same manner as income tax, so buyers only pay the relevant tax on the value of the property over the threshold.
New Stamp duty threshold figures
SDLT figures will differ depending on the property use, whether residential or non-residential. Corporate bodies such as companies and schemes for collective investments subject to SDLT will be charged at 15%. Corporate exemptions to this 15% rate will include companies that are strictly rental buisnesses, those involved in property development, and those that simply buy and sell property on a resale basis.
Residential property SDLT rates
|Purchase price of property||Rate of SDLT (percentage of portion of purchase price)|
|£0 – £125,000||0%|
|£125,001 – £250,000||2%|
|£250,001 – £925,000||5%|
|£925,001 – £1.5 million||10%|
|Over £1.5 million||12%|
Non-residential and mixed-use property SDLT rates
|Purchase price/lease premium or transfer value||Rate of SDLT (percentage of portion of purchase price)|
|Up to £150,000 – annual rent is less than £1,000||Zero|
|Up to £150,000 – annual rent is £1,000 or more||1%|
|Over £150,000 to £250,000||1%|
|Over £250,000 to £500,000||3%|
Impact of stamp duty changes on property value
These changes are only expected to impact property values to a small degree in the mid-ranges, removing the less talked about ‘purchase void’ around threshold values – not many properties are sold at their true value when they are valued just above a threshold. For instance, under the old rules a property costing £265,000 would come with £7,950 SDLT, which under the new rules will be £3,250. Until now if a property’s true value was £265,000, the pull of the 3% tax rate would put buyers off bidding over £250,000. Now, paying full price in this scenario will only be an additional £1,250 tax rather than an additional £6,700.
To establish what SDLT you’ll be paying, visit the HMRC stamp duty calculator for accurate figures.