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How do the changes to stamp duty affect you?

05 December 2014
In a move that surprised a nation of house buyers, during his Autumn Statement Chancellor George Osborne announced that from midnight on 4th December 2014 the Stamp Duty Land Tax bandings have been revised.

The changes mean that 98% of homebuyers are going to pay less tax than they would have under the old system, which is great news for the property market and in particular first time buyers and those moving up the property ladder.

What are the changes?
The oldslab-tax’, as it was known, was seen as a distorting influence on the property market and a barrier for many would-be first time buyers and second steppers.  Under the old system, the tax was levied on the entire value of the property within each band.

So, if you paid £249,999 for a house, under the previous system your stamp duty bill would be £2,499.99. However, by increasing the value by just £1 to £250,001 then the 3% band comes into play on the entire price, so the amount tax payable rises to £7,500.

The new regulations introduce an incremental or graduated stamp duty tax system, similar to income tax.
•    The first £125,000 of a property’s price doesn’t incur any stamp duty
•    Then £125,001 - £250,000 of a property’s value incurs a 2% tax
•    Then £250,001 - £925,000 incurs a 5% tax
•    Then £925,001 - £1.5million incurs a 10% tax
•    And then anything above £1.5 million incurs a 12% tax

So using the same example as before, now a property priced at £249,999, under the new system your stamp duty bill would be the same at £2,499.99. However, properties at £250,001, will only pay the 5% tax on £1, instead of the entire amount under the old system, so the amount of tax payable is just £2,500 – a saving of £5,000.

Are there concerns?
Under the new system, on the whole, properties priced over £938,000 will pay more stamp duty though it is incremental and only applied on the amount above the bandings. Unlike the much debated Mansion Tax, stamp duty is a one-off tax on the purchase of a home, so will not unduly affect homeowners who are asset rich but cash poor.

We have already seen a great deal of change in the stamp duty bandings to the higher end of the market. Indeed, just four years ago the stamp duty banding increased for £1million houses and again just two years ago for £2million homes. As a result, it is unlikely that we will see any disruption to the high end market under the recent changes.

Our CEO, Paul Beresford, comments: “This new graduated stamp duty tax is going to lead to a significantly lower tax bill for the majority of buyers and is great news for first-time buyers and second steppers. Essex continues to be one of the most affordable and commuter-friendly Home Counties and the majority of buyers are going to find their budgets stretching a lot further.

“2014 has been a record breaking year for us and the housing market in Essex. We’ve seen an exodus of buyers from London in search for a better quality of life and value for money, and this growing demand has resulted in over £544million worth of Essex property sold in just six months. The change in legislation will remove any uncertainty from the housing market ahead of the next year’s election, so we're gearing up for a very busy spring!”

Click here to read the government’s two page guide to the reforms or use the stamp duty calculator to work out the tax on your next purchase.

If you have further questions about the stamp duty reform contact your local branch for some advice.