George Osborne, the Chancellor of the Exchequer, in his autumn statement on the 3 December 2014 made unexpected and radical reforms to the Stamp Duty system, these new rules coming into effect from midnight of that day.
What is Stamp Duty ?
Stamp Duty Land Tax, to give it its full name, is a tax you pay when you buy a house. The tax is calculated according to the purchase price of the property.
What are the changes ?
The changes apply to you if you are buying a home in the UK for over £125,000. These changes do not affect commercial properties.
Under the old rules you would have paid tax at a single rate on the entire purchase price.
|Between £125,001 – £250,000||1%|
|Between £250,001 – £500,000||3%|
|Between £500,001 -£1m||4%|
|Between £1m -£2m||5%|
|Above £2 m||7%|
Under the new rules you only pay the rate of tax on the part of the property within each tax band just like income tax. Below are the new rates.
|Between £0 – £125,000||0%|
|Between £125,001- £250,000||2%|
|Between £250,001 – £925,000||5%|
Therefore if you bought a house for £150,000 under the old regime you would have paid 1% of tax on the whole amount- a total of £1500 whereas buying the same house under the new rules means you will not pay any tax on the first £125,000 and 2% on the remaining £25,000. This works out at £500, a saving of £1000. If you were buying a house at £300,000 before 4 December 2014 the Stamp Duty would have been £9000 but now there would be no tax to pay on the first £125,000 , then 2% on the next £125,000 (£2500) and 5% on the last £50,000 (£2500) making a total of £5000.
Is this good news for everyone?
HM Treasury advises that Stamp Duty will be cut for 98% of people who pay it. However, anyone spending more than £937,000 will face a higher bill. If you are purchasing a home for £2.1m you will be liable for tax of £165,750 under the new regime versus £147,000 previously.
Changes in Scotland
In Scotland the new rates will apply only until the 1 April 2015 when the Land and Buildings Tax replaces Stamp Duty. This will also be calculated like income tax. There will be a tax free allowance of £145,000 on each transaction. Above that there will three bands:
|Between £145,001 – £250,000||2%|
|Between £250.001 – £325,000||5%|
|Between £325,001- £750,000||10%|
|£750,000 and over||12%|
If you would like to discuss the impact of this new land tax please contact me on 0141-552-3422 or by email firstname.lastname@example.org and I will do my best to help.