In his Autumn Statement, UK Chancellor George Osborne revealed an important change to the stamp duty system that will make life easier for property buyers – and sellers. According to the UK Treasury, the new system will result in stamp duty cuts for 98% of property buyers.
The property industry has long called for the abolition of the regressive and punitive ‘slab system’. Under these rules, stamp duty was charged in property value ‘slabs’; for example, property bought for anything from £125,001 to £250,000 come with 1% stamp duty, while properties bought for anything from £250,001 to £500,00 would with 3% stamp duty. That one pound equals a stamp duty difference of £5000!
Stamp duty taxes have burdened ordinary families because the rising house prices have pushed properties into a higher tax bracket, making it impossible for them to buy homes. The new system will increase stamp duty costs only on houses costing upwards of £937,000.
On the replacement system stamp duty will be calculated according to a ‘banded’ system (much like income tax), with each rate applicable only to a part of the property falling within the ‘band’. The first £125,000 will be tax-free, with 2 per cent paid on the portion up to £250,000, and 5 per cent up to £925,000, followed by 10 per cent on homes that cost up to £1.5 million, and finally 12 per cent on everything over that. As an example, consider an average priced home of £275,000; you will pay £4,500 less in tax under the new rules.
Though the reform to the stamp duty was long overdue, there is concern about distortion of the housing market because of the difficulty of selling properties just above the threshold; the hypothetical property valued at £250,001, for example. Under the new rules, 98 per cent of homebuyers will be paying tax only on portions of their property.
Meanwhile, new property developments are going full steam ahead. According to Taylor Wimpey, one of the UK’s largest residential developers, sensible mortgage regulation and a reduced risk of interest rate hikes means a positive outlook for residential property development in 2015, despite the housing slowdown and pre-election jitters. The company said it began 2015 with a record order book of £1.4bn, which is a 12 per cent increase on 2014. The company believes the market conditions are more balanced, and with a lower rate of price growth, a more sustainable housing market will emerge.
Featured image via Pound coins & calculator via Images of money