Stamp Duty Land Tax Changes
– what took them so long? The Stamp Duty Land Tax (SDLT) legislation has long been held to distort the residential property market, with the so-called “slab system”.
This system meant that the full sales price of a property was subject to a fixed percentage, depending which price bracket the property fell into. For example a £250,000 property would be subject to a SDLT charge of 1%, being £2,500. However a £250,001 property would be subject to a SDLT charge of 3%, being £7,500. The price difference of £1 led to an increased Stamp Duty Land Tax liability of £5,000!
The thresholds were for sales prices of up to £125,000 (0%), £250,000 (1%), £500,000 (3%), £1,000,000 (4%), £2,000,000 (5%) and above £2,000,000 (7%). The difference becomes even more pronounced at the higher end of the market, with the difference between a £2,000,000 and a £2,000,001 property being £40,000 of SDLT.
This resulted in two behavioural changes: Firstly, it took a significant increase in the housing market for properties to leap up into the next SDLT bracket. Given the £5,000 increase in SDLT at £250,001 just for paying a £1 more, very few house sales took
place between £250,000 and £260,000, so that £250,000 proved a barrier to price increases, and a similar pattern was seen with the other thresholds.
Secondly, a practice grew up between allocating the purchase price where it was just over a threshold between the property itself and chattels (moveable items such as carpets and furniture) within it, as chattels were not subject to SDLT.
In the Autumn Statement on 3 December 2014, a new system was introduced for residential properties with effect from 4 December to eliminate this distortion. Non-residential and mixed use properties still follow the old slab system.
The new system operates as follows: n0% on any amount up to £125,000
n2% on any amount over £125,000 up to £250,000 n5% on any amount over £250,000 up to £925,000 n10% on any amount over £925,000 up to £1,500,000 n12% on any amount over £1,500,000
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