Stamp Duty Land Tax: what can we expect in 2015?
At the end of 2014, George Osborne's Autumn Statement brought an exciting and radical change to the Stamp Duty Land Tax (SDLT) system in relation to residential property. We said goodbye to a "slab" system where SDLT was charged at a single rate based on the property's purchase price, and we welcomed a new progressive system where SDLT is levied at several rates according to the amount of purchase price falling within a particular banding. Like income tax.
The old residential rates are replaced with the following new banding:
- Up to £125,000 - 0%
- £125,001 to £250,000 - 2%
- £250,001 to £925,000 - 5%
- £925,001 to £1.5m - 10%
- Above £1.5m - 12%
So, a buyer of a £175,000 house pays nothing on the first £125,000, and then pays 2% on the next £50,000, resulting in a liability of £1,000. A saving of £750 on the old system where 1% would have been payable on the full purchase price.
How might this change the behaviour of buyers and sellers in 2015?
- Sellers less mindful of SDLT thresholds?
Under the previous regime, the first SDLT cliff stood at £250,000. A buyer of a £250,000 house would have had to pay £2,500 in SDLT, whereas the buyer of a £250,001 house would have been faced with a bill of £7,500. As a consequence, the housing market saw bunching of property pricing as a result of tax thresholds.
Under the new regime, the difference is less stark and may lead to a more even distribution of property pricing. The change will correct the distorted effect on the housing market which the slab system brought, and property pricing is likely to disperse with sellers less mindful of SDLT jumps.
- Increased house prices?
Because the new regime smooths out the jumps in duty thresholds, there is less reason to market a property at £249,995 and a property previously priced in that range may tip over the previously perceived SDLT cliff edge. Potential increases in house prices in this way may prevent first time buyers from securing a foothold on the property ladder and from existing home owners making steps up.
- Increased housing demand?
On the other hand, the new system shaves £££ off an up-front sum for buyers, which may result in more buyers being able to enter or move up the property ladder. It means our savings go further. The system seems fairer and certainly takes the sting out for those on the lower rungs.
The effect on buyers at the other end of the market is not so clear, and buyers of high value properties face a huge increase in their SDLT bills compared to the slab system. There is some evidence from estate agents that there has been a downturn at the top end of the market because of the increase in SDLT, but then again that may be a result of seasonal factors. In the meantime, however, the system constitutes a political counterweight to the proposed Mansion Tax.
The change to residential property is immediate, so let's see how 2015 unfolds. Commercial property currently remains unchanged.