We seem to be in an unusual time warp at the moment, a couple of months before a General Election, and a few weeks after major Stamp Duty Land Tax (SDLT) reform.
We have a boost to the house buying public with the introduction of the new SDLT system. As you are probably aware under the old system, as soon as you went £1 into the next level of taxation, the entire purchase price was taxed at the higher level. With the abolition of this ‘slab’ system, the way we pay the duty has ironed out the pinch points and made the whole system much smoother.
There are one or two oddities about the changeover. In the range of £925,000 to about £1.1m it is possible for the new rates to be more costly than the old, but above the £1.1m level, which will affect about only 2% of UK property owners, the SDLT levels soar.
Thresholds for the new bands are as follows:
£0 - £125k = 0% £125,000 - £250,000 = 2%
£250,000 - £925,000 = 5% £925,000 - £1.5m = 10%
Over £1.5m = 12%
Looking at the positive side of things, buying below £925,000 (and that’s still a huge section of the market) will mean you are paying less in Stamp Duty and as outlined above, until the purchase price reaches approximately £1.1m you should be on the right side of the equation. What happens then?
The darker side of the Stamp Duty changes for the most part does mean above £1.1m you will be paying more. And if you’re fortunate enough to be able to buy at say £2m, your Stamp Duty charges are going to leap from £100,000 under the old system to £153,750 under the new one.
The effect on the market? We’ll just have to wait and see, but it will probably have the effect of slowing the price rises for the moment.
The consequences of the changes in duty? In our opinion we may be looking at a split market with the higher London prices subsidising the rest of the country. The government of the day will be collecting a higher share of stamp duty from the uber expensive properties which are also likely to be clobbered by any future Mansion Tax imposed by Labour. Maybe not such a bad thing, but think of this; when taxes are lowered as has been the case with Ireland and corporation tax, guess what happens – companies such as Apple flock there to pay their taxes.
So let’s go back and see what happened in the 1980’s when Thatcher reduced income taxes in the UK– more people paid tax and consequently the tax take increased..