New rules come into force today regarding Stamp Duty Land Tax payable on the purchase of residential freehold property.

Under the previous ‘slab’ based structure, Stamp Duty Land Tax (SDLT) was paid at a single percentage rate of the entire purchase price.

Instead of this slab type arrangement, the new scheme works in much the same way as income tax. Buyers will pay 0{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} on the first £125,000 and then incremental percentages upon each amount falling within the subsequent price bracket. A Buyer paying £275,000 for a home exchanged after today’s date, will be charged 0{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} on the first £125,000, 2{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} on the next £125,000 (£2,500) and 5{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} on the remaining £25,000 (£1,250). This incurs an overall tax liability of £3,750. Under the previous scheme, 3{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} would have been paid on the entire price (incurring a much larger charge of £8,250).

The huge leaps in SDLT payable once the value of a house enters a subsequent tax bracket will now be avoided and HMRC envisage that the incremental tax bands will create a smoother transition in property pricing between each tax bracket.

The news isn’t good for everyone however. Percentage rates for each tax bracket have actually increased under the new scheme, including a 12{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} rate for properties sold for in excess of 1.5 million pounds (just 7{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} was charged previously). Although lower to medium value homes also attract slightly higher percentage rates, they are better able to make use of the £125,000 tax free amount. The net result is that only property purchased for in excess of £937,000 will result in more SDLT being payable.

A buyer who exchanged contracts before the 4th of December, but doesn’t complete until on or after that date, may choose whether to pay SDLT under the old or new scheme. Clearly those who have purchased properties around the million pound mark have the incentive to opt out of the new scheme while they still can. For the majority of home purchases (the Government calculate this will be 98{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} of all transactions), Buyers and Sellers will certainly welcome the new arrangements.

If you would like to discuss any of the issues raised in this Blog, please contact Allison Fuller or Kate Burrows