Stamp Duty Land Tax – The New Rules


Last year saw a change to Stamp Duty Land Tax, from the 4 December 2014 a new regime was in place after the Chancellor’s Autumn Statement.

The basis for the reform was to make stamp duty fairer and in turn improve the housing market. Prior to the new rules if you were purchasing a property which was above the threshold of £125,000 you would be liable for Stamp Duty Land tax on the whole value of the property. Now, you are only liable for tax for the portion of the purchase price above the threshold, this has made the tax regime similar to that of income tax. Below are some examples of the different liabilities under the old and new rules.

A lot of people were in the middle of property transactions when the new rules came into effect and were concerned how this would affect them. If your property transaction completed on or before the 3 December your tax liability was governed by the old rules. However, if you had exchanged contracts prior to the 4 December with completion after the 4 December, the purchaser could choose which rules they wished to follow. In most cases, this would have been the new rules due to the substantial tax saving. All transactions after the 4 December follow the new rules.

The new rules will reduce the majority of purchaser’s Stamp Duty Land Tax liability, except where the property is worth over £937,500. Properties which are above this price will see an increase in Stamp Duty Land Tax liability.

Example

Mr and Mrs Smith are purchasing a property for £145,000. If the transaction completed prior to the new rules the Stamp Duty liability would be:

£145,000 x 1% = £1,450

If the transaction completed under the new rules the liability would be:

£125,000 x 0% = £0.00
£20,000 x 2% = £400.00
Total liability = £400.00

The New Stamp Duty Land Tax Rates

Proportion of purchase price Rates paid for each tax band
0 – 125,000 0%
125,001 – 250,000 2%
250,001 – 925,000 5%
925,001 – 1,500,000 10%
1,500,001 and over 12%

Example

For a property of £275,000 the Stamp Duty payable would be £3,750 which is calculated as follows:

£125,000 x 0% = £0.00
£125,000 x 2% = £2,500.00
£25,000 x 5% = £1,250.00
Total liability = £3,750.00

If you require any further information regarding the changes to the Stamp Duty Land Tax liability, then please do not hesitate to contact us.