Autumn Statement – SDLT reforms
In the Autumn Statement today, Chancellor George Osborne announced wide-scale reforms to the stamp duty land tax (SDLT) regime on the purchase of residential properties.
Since its introduction in the Finance Act 2003, the SDLT regime has long been criticised for a “slab” approach to taxation. This meant that, once the purchase price of a residential property pushed the property in to a higher band, the higher rate of SDLT was charged on the full purchase price.
Consider a property that is sold for £125,000. The purchaser, who is liable for the SDLT on the purchase, does not have to pay any tax, as it is within the £125,000 threshold. Once the property sells for £125,001, however, SDLT is due at 1% on the whole amount. This is quite extraordinary, as a further £1 on the purchase price has meant the tax bill has gone from £0 to £1,250.
The Chancellor has announced that the current SDLT system will be radically over-hauled and become fairer and more progressive, in line with other areas of taxation, such as income tax, where moving to a higher band results in the higher rate applying only on the additional sums over the threshold.
This compares to £8,250 under the current rules.
The Chancellor stated that this will benefit 98% of house price purchasers, and the tax liability under the new system will only be greater under the new system compared to the old once the purchase price exceeds £937,500.
Transitional rules have also been announced which allow buyers who have exchanged but not completed by 4 December 2014 to elect for either the existing or the new rules to apply. For most purchasers, the new rules should prove attractive. For example, the Budget Report states that the average first-time buyer will save £400 on a property worth £210,000.
One further point to note is that the new rules will only apply in Scotland until 31 March 2015, as a new Land and Buildings Transaction Tax (LBTT) will be introduced by the Scottish Parliament on 1 April 2015.
The reforms, seen by some commentators as the Conservatives’ answer to the “mansion tax” proposed by Labour, have been billed as a reform on the tax on the aspiration of home ownership. Any reduction in the tax bill on the purchase of a house should be welcomed, and it is interesting that the new system is similar to the changes to be introduced in Scotland next year, widely marketed north of the border as “progressive” and “removing the distortions in house prices” as sales bunch around the current thresholds.
A Tech Talk discussing the changes in more detail, including the LBTT, will follow shortly.