George Osborne has announced the end for the current stamp duty system; the much-maligned slab system is set to be replaced by a progressive taxation policy, similar to income tax. Under the new scheme, which came into force on midnight 4th December, the Chancellor has suggested that 98% of homebuyers will pay less tax, and that only those purchasing a property over £937,000 will be worse off.
Under the old scheme, stamp duty was levied at 1% at a purchase price over £125,000, 3% above £250,000, 4% above £500,000, 5% above £1m and 7% above £2m. The new scheme kicks in at 2% between a house price of £125,000 to £250,000, 5% up to £925,000, 10% to £1.5m and 12% above that. On the face of it, that doesn’t sound like a discount, but the graph below shows how the new stamp duty rates round off underneath the slab-like steps of the previous system, therefore giving homebuyers some relief in the centre of the stamp-duty bands.
The change is the biggest stamp duty reform since Gordon Brown brought in higher rate bands when he became Chancellor in 1997. Prior to this, stamp duty was levied at 1% over a threshold of £60,000. The higher percentage thresholds were also introduced by New Labour as the Mr Brown sought to cash in on the property boom. However, despite runaway house inflation in the following years, the stamp duty thresholds remained the same. Experts believe that if the stamp duty thresholds had followed house price inflation, there would be no tax payable below a purchase price of £787,500.
Whichever way it is dressed up, this new stamp-duty system that was introduced as part of the Autumn statement, is also designed to cash in on higher-end property transactions, with the Chancellor introducing the new 5% band above £1m and the 7% band over £2m. This is bad news for the London property market, however, the majority (those dealing in house sales below £937,000) of homebuyers should be happier with the new system, potentially making this a political game changer.
If you want to calculate exactly how much stamp duty you will pay under the new system, follow this link to a stamp duty calculator:
Sources: thisismoney.co.uk, www.gov.uk (image courtesy of getsurrey.co.uk)