Following the Autumn Statement yesterday, the Westbury Accountants London based tax team took an in depth look at some of the changes. The Chancellor has announced a major change to the way in which stamp taxes are charged on residential property. In doing so, he has challenged the opposition’s proposals for a mansion tax on properties worth more than £2M. His point is that stamp duty land tax, to give it its full name, or SDLT for short, will be paid up front, when a purchaser will have the cash to pay it, as opposed to the annual mansion tax that he would have to pay at a time when he might not. Ed Milliband has said that the latest Labour proposals would have deferred the payment of their version of the tax until the property was sold, but their proposals still require valuations of property and a rolling-up of the annual charge and these now look rather clumsy compared to a simple up-front payment.
SDLT is, of course, a significant cost to anyone buying a home or a buy-to-let property investment. Much has been made about the inherent unfairness in the way it has been charged which, until now, has been using what is known as a “slab” basis. This means that the rate of SDLT is determined by the purchase price and that rate is then applied to the whole amount being paid. This gives rise to distortions at the point where the rate of SDLT changes. For example, SDLT on a property worth £250,000 is currently charged at 1% so the total payable would be £2,500. But the rate charged on a property worth £250,001 is 3%, giving an SDLT bill of £7,500; an extra £5,000 for a £1 higher value. Obviously, no-one in their right mind would agree to pay £250,001, but the point remains that the system is manifestly unfair.
The Chancellor has now changed the rates at which SDLT is charged, but the new rates will apply to the bands themselves, rather than to the whole of the purchase price. The new rates are as follows:
Band Rate of SDLT SDLT payable on band
£0 – £125,000 0% £0
£125,001 – £250,000 2% £2,500
£250,001 – £925,000 5% £33,750
£925,001 – £1,500,000 10% £57,500
Over £1,500,000 12% As appropriate
Mr Osborne was particularly keen to stress the savings at or around the price of the average house. The SDLT on a property worth £275,000 would have been £8,250 under the old system, but will be only be £3,750 under the new, a saving of £4,500. Conversely, there are substantial increases at the top end of the market, where the top rate of SDLT has gone up from 7% on properties worth more than £2M to an eye-watering 12% on properties worth over £1.5M. The purchaser of a property worth £2M, the figure at which various proposals for a mansion tax would have started to bite, would have paid SDLT of £100,000 under the old rules, but will now be asked to stump up £153,750. They will not have to pay an annual mansion tax on top, as the Chancellor has no intention of introducing one, but the additional tax £53,750 is going to hurt.
These changes are a clear improvement over the old system (unless you’re buying an expensive property!), but with an election coming up it remains to be seen how long-lasting they will be. I suspect that the principle of taxing bands will remain, as the old slab system was hopelessly unfair, but politicians do love to tinker and property taxation is unlikely to remain untouched no matters who wins next year.
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