SDLT: revised structure, rates and thresholds for residential property
After the shock announcement from the Chancellor, George Osbourne on Wednesday, 3rd December 2014, radical changes to the Stamp Duty rules. The government have jettisoned the previous system, under which Stamp Duty was levied at a single rate on the chargeable consideration for a transaction (old rules), and replaced it with a “progressive” system, under which Stamp Duty is charged at several rates according to the portion of the total consideration falling within each of several bands (new rules). This is aimed at correcting market distortions for properties with a value close to the existing borders separating Stamp Duty rate increments.
The new rules will apply only to residential property transactions with an effective date on or after 4 December 2014, subject to transitional arrangements. Non-residential, mixed property and enveloped dwellings are unaffected by these changes.
The residential Stamp Duty rates applicable under the old rules will be replaced with the following bands.
|Property value band||Stamp Duty rate|
|£0 to £125,000||0%|
|Over £125,000 to £250,000||2%|
|Over £250,000 to £925,000||5%|
|Over £925,000 to £1.5 million||10%|
|Over £1.5 million||12%|
For example, under the old rules, the Stamp Duty charge on a residential property bought for £450,000 would be £13,500 (the entire consideration would be taxed at 3%). Under the new rules, the Stamp Duty charge would be £12,500 (the first £125,000 would be taxed at 0%, the next £125,000 at 2% and the final £200,000 at 5%).
The effective rate of tax for properties with a chargeable consideration of £937,500 or less will be lower, or the same as, the effective rate of tax under the old rules. However, there will be an increase in the effective rate for most higher value properties. For example, a residential property bought for £1.25 million under the old rules would attract Stamp Duty of £62,500 (effective rate 5%). Under the new rules, the charge would be £68,750 (effective rate of 5.5%).
Under transitional rules, buyers may elect to pay Stamp Duty under the old rules in either of the following cases:
- The transaction is effected under a contract substantially performed before 4 December 2014.
- The transaction is effected under a contract entered into before 4 December 2014 unless:
- the contract (or assignment of rights under the contract) is varied on or after 4 December 2014;
- the transaction is consequent on the exercise of an option (right of pre-emption or similar right) on or after 4 December 2014; or
- there has been an assignment, sub-sale or other transaction relating to the whole or part of the subject matter of the contract resulting in another person having the right to call for a conveyance of the subject matter.
Pending the development of HMRC’s IT systems, a stand-alone online calculator is available (see http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm).
You may wish to find further information on the new Stamp Duty rules by using the following links: