4 December 2014

What The New Stamp Duty Structure Means and How it Will Affect You

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Yesterday, George Osborne announced some big changes to the current Stamp Duty system which took many agents by surprise. The latest figures suggest that somewhere in the region of 98% of house buyers will be better off because of these changes. How much will you save? Find  out here…

As of 12am last night, a new system of Stamp Duty has been adopted for property purchases across the UK which should see 98% of home buyers better off. Here’s the new thresholds as announced by Mr Osborne himself in his Autumn statement:

Purchase Price Stamp Duty Tax
£0 – £125,000 Zero
Over £125,000 – £250,000 2%
Over £250,000 – £925,000 5%
Over £925,000 – £1,500,000 10%
£1,500,001 + 12%

The old “Slab” system where buyers paid the corresponding percentage on the full purchase price has been scrapped and a new system ushered in. Rather than try and put this into words, we thought it would be better to show some examples of how Stamp Duty will be applied:

Purchase Price Old System New System Saving
£125,000 £0 £0 £0
£160,000 £1600 £700 £900
£185,000 £1,850 £1,200 £650
£275,000 £8,250 £3,750 £4,500
£510,000 £20,400 £15,500 £4,900
£1,100,000 £55,000 £53,750 £1,250
£2,100,000 £147,000 £165,750 – £18,750

Rather than paying a set percentage on the full purchase price, you now pay the percentage on the bands which are included up to the property purchase price.

For example, in the table above, you will see that a purchase price of £510,000 will now result in a Stamp Duty Land Tax bill of £15,500. This is worked out as:

2% on £125,000 (The difference between £125,000 – £250,000)  = £2,500

Plus

5% on £260,000 (The difference between £250,000 and £510,000) = £13,000

Which added together comes to a total of £15,500.

We hope that makes sense, it took us a while to get our heads around it too!

For most property purchasers in Derby and the surrounding suburbs, this is great news as most will save on the amount of Stamp Duty they would have been paying under the old system and what great timing with Christmas right around the corner.

It is the very top end of the market that will be most affected by these new changes. A property costing £1.5 million will see a 25% increase in Stamp Duty with the tax jumping from £75,000 to £93,750. Anyone looking to purchase a property with an asking price of £4 million will now be expected to pay £393,750 in Stamp Duty alone, an increase of 41% on the old system!

Most purchasing a property above £937,500 (except between £1,000,0001 and £1,100,000) will find themselves paying more Stamp Duty and it is estimated that this could effect as many as 500,000 properties across the UK

Whilst this may have an impact on the asking prices of top end properties as sellers reduce to encourage interest, it will also be interesting to see what happens to properties prices which fell close to the old stamp duty thresholds. For example, properties priced just above £250,000 would previously have struggled to attract offers over £250,000 as the stamp duty jumped from 1% to 3%. However, with the playing field now leveled out, this may no longer be a factor that buyers will have to consider when putting forward their offer.