New Stamp Duty Changes Explained

Yesterday, the Chancellor George Osborne announced drastic changes to the Stamp Duty Land Tax (SDLT) system for residential property, and these changes take effect from today.  It is indicated that the revised system will result in savings for 98% of people.

The new banded system will only apply SDLT on the part of the purchase price that falls within the applicable band, rather than on the whole purchase price, working on similar principles to the Income Tax system.

The purchase price between £0 and £125,000 is now taxed at 0%, then between £125,001 and £250,000 is taxed at 2% and so on.

For example

If your purchase price is £130,000
The first £125,000 is taxed at 0%
The next £5,000 is taxed at 2%
Total liability £100
Previously your SDLT liability would have been £1300
A significant saving of £1200

The principles apply throughout and higher value properties will fall in all brackets.

For example

If your purchase price is £300,000
The first £125,000 is taxed at 0%
The next £125,000 is taxed at 2% - liability for this portion - £2,500
The remaining £50,000 is taxed at 5% - tax liability for this portion - £2,500
Total liability £5,000
Previously your SDLT liability would have been £9,000

A significant saving of £4000

The new rules apply from midnight on 4th December 2014, if you exchanged contracts before the new rules were introduced (so up until yesterday), but you are yet to complete, you can choose which regime to apply; in the majority of cases the new rules will either result in no change or a significant saving.

Whilst this is welcome news for future home buyers, unfortunately there is a down side for some. If you have completed your property purchase recently, there is nothing you can do. With the changes only announced yesterday, the general public did not know this was going to happen, and therefore professionals were unable to advise their clients to delay their completions.