Stamp Duty Land Tax Reforms

In a move welcomed by homebuyers, the Government has changed the way that stamp duty is calculated. The Government claims that approximately 98% of homebuyers will be better off following the changes which took affect at midnight on 3rd December 2014.

Under the previous system, stamp duty was calculated on price brackets which resulted in pricing distortions which occurred at the thresholds of £125,000, £250,000 and £500,000. The new stamp duty system, akin to the way income tax is based on a graduated rate, means that stamp duty will only be payable on the portion of the property value which falls within each band. The changes only affect residential properties, with the previous stamp duty rules still remaining in force for mixed use and commercial properties.

The new rates are:

Purchase price of propertyRate paid on part of price within each band
Up to £125,0000%
Over £125,000 and up to £250,0002%
Over £250,000 and up to £925,0005%
Over £925,00 and up to £1,500,00010%
Over £1,500,00012%

For example, under the new rules the stamp duty due on the purchase of a residential property for £450,000 which completes on or after 4 December 2014 would be calculated as follows: 

0% on the first £125,000£0
2% on the next £125,000£2,500
5% on the final £200,000£10,000
Total Stamp Duty due£12,500

(If completion was before 4 December 2014 the stamp duty due would have been £13,500 calculated as £450,000 x 3%).

There are transitional arrangements in place for purchasers who wish to pay stamp duty on the old system. For these to apply contracts must have been exchanged before 3rd December 2014 with completion to take place after 4th December 2014. Given that most homebuyers will pay less stamp duty under the new regime, the transitional arrangements are unlikely to be widely used.

The HM Revenue & Customs have produced an online stamp duty calculator and this can be accessed by following this link: http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm

Our Residential Property Team would be delighted to help, for more information please contact:

Peter Izod from our Oundle office on 01832 273506

Gregory Begy from our Peterborough Office on 01733 882800

Elaine Cummins from our Huntingdon Office on 01480 411224 

Article by Sarah Morris, Residential Conveyancing Team, Peterborough

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This article has been prepared for general interest and information purposes only; it does not constitute legal advice and should not be relied on as such. While all possible care has been taken in the preparation of this article, no responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by the firm or the authors.