In yesterday’s Autumn Statement, the Chancellor George Osborne announced a major reform to Stamp Duty Land Tax (SDLT) which is anticipated to benefit an overwhelming majority of home owners and property investors.
The changes, which took effect as of midnight last night, have seen the threshold jumps replaced by a graduated rate.
The old system has been described as the worst designed tax in the UK and mainly penalised purchases of properties between £250,000 and £500,000 in value.
So what’s changed?
Prior to the overhaul, buyers were required to pay:
- No tax on properties up to £125,000 in value
- 1% on properties up to £250,000
- 3% on purchases between £250,000 and £500,000
- 4% on properties priced above £500,000 and up to £1 million
- 5% on purchases between £1 million and £2 million
- 7% on properties priced above £2 million
This meant that those people who bought properties in excess of £250,000 had to pay a substantial tax to HMRC. For example, someone buying a £300,000 property had to pay 3% of the value, which equals £9,000 SDLT, upon completion of the purchase.
Under the new scheme, properties worth less than £125,000 will still be exempt from the Stamp Duty, but the remainder of the system will work in a different way:
- 2% on purchases between £125,000 and £250,000
- 5% on properties priced above £250,000 and up to £925,000
- 10% on purchases between £925,000 and £1.5 million
- 12% on properties prices above £1.5 million
At a glance, this doesn’t look great for the majority of buyers. But here’s why it’s actually good news.
With the old threshold jumps, a property worth £150,000 would attract a Stamp Duty of 1% on the entire value - a total cost of £1,500. But now, tax will only be payable on the amount above £125,000. In this example, 2% would be payable on the smaller amount of £25,000 which equals £500. That’s an amazing saving of £1,000 for a first time buyer.
So, going back to my original example, but under the new scheme, someone buying a property for £300,000 will now only pay £5,000 in Stamp Duty compared to £9,000 – that’s nothing on the first £125,000 of the value, 2% on the second £125,000 and 5% on the remaining £50,000.
How will this reform benefit property investors?
For landlords and investors buying several properties, Stamp Duty used to pose a significant cost. Now they will be able to make huge savings. As an example, over the course of five property purchases for £300,000 each, landlords will see a £20,000 saving in Stamp Duty payments.
This change represents a saving to all properties within the buying price range for PPP landlords and therefore provides another good reason why now is a perfect time to start building a high income property portfolio.
How will the changes benefit you?
