A significant overhaul of how stamp duty will be charged was perhaps the biggest surprise in George Osborne’s Autumn Statement this afternoon.
The new rules will take effect as of midnight tonight, and will affect 98% of home-buyers according to the chancellor, so here’s the lowdown on what tomorrow brings.
Currently, stamp duty is charged as a single percentage of the total property price. There are several price brackets, and house buyers pay a one-off fee accordingly.
The problem with this system is that it had a bunching effect on the housing market. Estate agents complained that they would see a disproportionate number of houses sitting at the top end of each price bracket, in order to attract prospective buyers.
For example, in the old system, properties up to £250,000 were liable for stamp duty of 1%, but those worth £250,001 were liable for 3% of the total price. So if you bought a property for £250,000 you’d pay £2,500 stamp duty. If you paid just one pound more for your home (£205,001), you’d pay £7,500 in stamp duty.
Under the new system, homes will still be split into price brackets with according percentages of tax, but the charges will be applied on a sliding scale in the same way as income tax is taken from pay cheques.
Here is how it will work:
There will be no tax on houses that are worth under £125,000.
£125,000 – £250,000 houses will be taxed at 2%.
Then amounts past that will be taxed at…
£250,001 – £925,000 at 5%…
£925,001 – £1.5m at 10%…
… any any remaning portion over £1.5m at 12%.
So what does that mean in practice?
Here are some examples, from the government’s document, on how the new system will affect homes in varying price brackets:
Who will pay more and who will pay less?
According to the chancellor, those buying a house at the UK average of £275,000 will pay £4,500 less tax than they currently would.
Only those spending over £937,000 on a property will end up with a bigger tax bill.
What’s Labour said?
In his follow-up speech, Shadow Chancellor Ed Balls said he welcomed action on the issue, as rich home owners have been undertaxed.
But he asked why Osborne won’t introduce an annual charge on the highest value properties (read mansion tax) which could generate £2.5bn for the Treasury.
What do property people think?
According to property website Zoopla, house sellers could be set to save £213m a year, or almost £7,500 each.
Lawrence Hall of Zoopla said: “The new, graduated stamp duty system is a long overdue overhaul to what the Chancellor admitted was a poorly-designed tax and represents a fairer system for the vast majority of homebuyers.
“It also means that those selling their home at certain levels are more likely to achieve the real value of their homes and won’t be forced to discount their properties to sneak under certain bands.”
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