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Following the chancellor’s announcement that there will be a £800m stamp duty cut yesterday, Inside Housing takes a look at some of the key things our readers should know about the tax and the overhaul.
George Osborne announced an immediate overhaul of stamp duty yesterday, which he said will lead to tax cuts for 98% of homebuyers. He announced the current ‘slab’ system, under which stamp duty jumps by a fixed sum at certain thresholds of home values, would be removed at midnight.
It has been replaced by a system more akin to income tax, where taxpayers only pay a percentage on the amount over a certain band. Mr Osborne said only those buying homes worth £937,000 or more will see their stamp duty bill go up as a result of the changes.
Following this news, Inside Housing has compiled four things our readers show know about the tax and the overhaul.
1. The savings could be closer to £700 - not £4,500 as the chancellor claimed
Research by Daniel Watney Chartered Surveyors suggests that the £4,500 figure George Osborne used is based on the ONS average house price in England and Wales of £275,000. However, it found when referencing more widely used house prices, both national and London only averages, savings come in at less than £750. (See graph below) The Land Registry puts the price of the average home at £177,000 with a saving of £730. Nationwide’s average figure of £189,000 means that figure falls to £610 under the new system.
2. Stamp duty has gone through 11 different incarnations in 20 years
Halifax compiled the recent history of stamp duty and found that since 1991, there have been 11 different changes including the latest one. Some of the highlights were:
3. Buyers in Scotland will only benefit until April
The Scottish Government is bringing in the Land and Buildings Transaction Tax from 1st April 2015. This new tax system in Scotland could slow the already ailing recovery in the Scottish market,according to Savills’ Andrew Perratt.
He said: ‘It is interesting that the Scottish market, which has been slowest to recover, will only feel the benefit in the very short term.
‘After 1 April buyers of an average family house in Edinburgh (£360,000) for example, will be paying £13,600 in tax under the new LBTT system, which is 66% more than the new stamp duty rates announced yesterday.’
The LBTT rates are as follows:
Purchase price | LBTT rate |
---|---|
Up to £135,000 | 0% |
Above £135,000 to £250,000 | 2% |
Above £250,000 to £1,000,000 | 10% |
Above £1,000,000 | 12% |
John Swinney, Scottish deputy first minister, suggested the move by Mr Osborne was imitating the Scottish Government’s LBTT system, saying ‘Imitation is the sincerest form of flattery’.
4. Only 25% of homes will be completley exempt, but it should save first and second time buyersmoney
Based on Halifax research, three-quarters of all home purchases in England and Wales in the 12 months to September 2014 were above the starting stamp duty threshold of £125,000. This means only 25% of homes will be exempt.
The consensus yesterday from the housing sector, charities and house builders was that the move was a sensible one for first and second time buyers. However, there was complaints from the British Property Federation about the lack of notice of the changes. Liz Peace, chief executive of the BPF, says because the changes will mean owners of higher value properties are paying more, ‘this will hopefully be the death-knell for any more talk of mansion taxes’.
It has been reportedthat there was a race in London’s high end property market to get property transactions through before midnight yesterday so that they wouldn’t face the higher fee. The Evening Standard reported some lawyers were promised £10,000 ‘success fees’ to get the paperwork finished by 11.59pm.
(And for those wondering about the name - it is called stamp duty because when the tax first originated, a revenue stamp had to be attached to the document to show that it had been paid before the document was legally effective.)
Stamp duty breakdown