THE CHANCELLOR delivered a welcome surprise in his Autumn Statement last week with the announcement of sweeping reforms to stamp duty, a move that was welcomed by buyers and sellers, as well as the property industry.
What do property reforms mean for you?
The “slab structure” that has been replaced had long been criticised for its punitive nature as it creates distortions at certain values.
It has also come under fire for disproportionately affecting buyers and sellers in the South-east.
There have been repeated calls to change the duty so that it is fairer.
Speaking last week, George Osborne said: “We are going to change fundamentally this antiaspirational homes tax that has distorted our market for decades.”
Here we take a closer look.
HOW DID STAMP DUTY WORK?
Under the old system, someone buying a home for £125,000 paid no tax, while someone buying a property for £125,001 paid 1 per cent (£1,250).
Those buying a property for £250,000 had to pay 1 per cent in tax (£2,500), while buying a property for £250,001 would incur duty at 3 per cent (£7,500) on the whole sum.
WHAT ARE THE CHANGES?
The reforms remove the “dead zones” just above each existing stamp duty band, and see a more progressive approach where buyers will be liable only for the portion of a property’s value above each new level.
Under the new system, you will not pay tax on the first £125,000 of a property’s value. You will then pay 2 per cent on the portion from £125,000 to £250,000, 5 per cent up to £925,000, 10 per cent up to £1.5 million, and 12 per cent on everything above that.
Stamp duty calculator: www.hmrc.gov.uk/tools/sdlt/land-and-property.htm
WHEN WILL THE CHANGES TAKE EFFECT?
The new system took effect from midnight last Wednesday meaning homeowners will benefit instantly.
If you are in the process of purchasing a home, you now have the option of choosing the regime under which you wish to operate.
HOW HAS THE INDUSTRY RESPONDED?
Broadly speaking, the move has been well received. Property experts say it is particularly good news for buyers, as only those paying more than £937,500 will pay more tax than under the current system.
The only exception is some anomalies around the £1 million mark (see calculator Hmrc.gov.uk/tools/ sdlt/land-and-property.htm).
Andrew Montlake from broker Coreco says: “On the face of it, this is a welcome move, signalling a shift from the outdated slab system.
“Moving to a more sensible scheme that works in much the same way as income tax means that many buyers will have more cash in their pocket.
“For example, someone purchasing at £550,000 will now pay £17,500 rather than £22,000.”
However, while 98 per cent will benefit, Montlake points out that someone purchasing at £1.5 million will now pay £93,750 rather than £75,000. “This will hit those in London and the South-east harder,” he says.
“That said, it could be argued that by hiking the percentage charged on high-end properties, this is a much more preferable option than the much-derided annual Mansion Tax.”
Paul Smith from estate agent Haart adds: “Top marks for the Chancellor who has heeded long-held concerns over this punitive tax.
“By introducing a progressive tax-banding system, there will be more winners than losers.”
WHAT DOES IT MEAN FOR FIRST-TIME BUYERS?
The move could be particularly beneficial to first-timers.
For example, someone buying a £185,000 property under the Government’s Help to Buy scheme will save £650 under the reforms.
“The changes will reduce the up-front costs for younger buyers,” says Simon Tyler from broker Tyler Mortgage Management.
“This will provide a further boost to Government-assistance schemes, such as Help to Buy, which have been extremely valuable in getting people on to the housing ladder.”
WHAT WILL HAPPEN TO PRICES? Property experts say the changes could have an impact on house prices.
Charles Haresnape at Aldermore Bank says: “Sellers are likely to attract buyers by undercutting the new bands of £250,000 and £925,000.”
WHAT ARE THE CONCERNS?
Despite the many positives, there are worries about what this will mean for housing supply.
“Stamp duty is a long-overdue reform, but the measure stokes demand and does little to boost supply,” says Julia Unwin from the Joseph Rowntree Foundation.
“Increased supply is badly needed to end the housing crisis within a generation.”