In December 2014, the Chancellor of the Exchequer announced overnight radical Stamp Duty Land Tax reforms. Under this new scheme it is anticipated that 98% of buyers will pay either the same or less than before. The change has effectively removed the ‘dead zones’ which occurred for properties just above each threshold and is intended to revive the housing market.
Previously, Stamp Duty was calculated on the entire purchase price and fell into different brackets. This caused vast problems for those with a property to sell worth around £260,000 as it meant that Buyers found themselves in the 3% band and liable for £7,800 or more in Stamp Duty. If buyers could negotiate the price to £250,000 then they would only be facing a £2,500 payment. And how do you add enough value to your house to make it worth people wanting to pay the extra tax?
Now, instead of paying one flat rate depending on the band in which the price of the property falls, the buyer will pay a percentage on the slice of the purchase price that falls in each new bracket. Therefore, the slice that falls between £125,000 and £250,000 incurs a 2% payment and after that it is 5% of any portion between £250,000 and £925,000. The higher bands increase to 10% for any portion between £925,000 and £1.5 million and 12% thereafter.
Those people who are purchasing a property worth over £937,000 will pay more in Stamp Duty than before. So, is this mansion tax in disguise? And how does it affect those people looking to buy and sell homes?
Buyers have lost their previous bargaining tool that they cannot afford to go over the old Stamp Duty thresholds. With any luck, they will still be in a position to offer speed and ease to a Seller if they have no chain or funds in place ready to go. Sellers are in a position that if their house is worth £260,000 then the are likely to achieve this sum and properties will be listed at their market value rather than in accordance with tax thresholds. Ideally, those selling who are looking to buy will then be in a position to offer more on a potential purchase thereby kickstarting the flagging market and giving it the boost that it needs to further fuel the economy.
Whether it is successful or not, remains to be seen!
For more advice on Stamp Duty call Jackie Scott at our Chichester office on 01243 850860 or Holly Sheldrake at our Alton office 01420 544273.