Stamp Duty Land Tax (‘SDLT’) on residential properties has historically operated on a ‘slab’ system, meaning that a single rate of tax was charged on the whole amount of the transfer price, depending upon the rate applicable within the relevant charging band.
For transactions effected on or after 4 December 2014, new SDLT rates will apply according to a ‘sliced’ system. Unlike the previous regime, similar to income tax, the new rates are progressive, so that the proportion of the transfer value which falls within each particular band will be subject to that rate of tax, and aggregated in order to compute the total SDLT payable.
Under the new rules, SDLT will be charged at the applicable rate on each slice of the consideration as follows:
- 0% on any consideration up to £125,000
- 2% on any consideration between £125,000 and £250,000
- 5% on any consideration between £250,000 and £925,000
- 10% on any consideration between £925,000 and £1,500,000
- 12% on any consideration exceeding £1,500,000
For transactions exchanged before midnight of 3rd December 2014, but were not completed or were in progress, transitional rules allowed the taxpayer to elect whether to apply the rates under the old rules or to apply the new regime.
The reformed SDLT regime appears to have been designed to benefit the masses of home buyers at the lower end of the market, particularly first time buyers, and penalise those purchasing much higher value properties. In respect of properties below £937,500 ( the breakeven value between the old and new rules) the SDLT chargeable is lower than under the previous slab system. It is estimated that some 98% of home buyers will benefit under the reformed system. The average tax savings of £4,500 occurs at a property value of £275,000. At property values of £1,500,000, the increase in SDLT under the new rules is 25%. The increase in SDLT under the new rules reaches 50% more than under the old regime at properties valued at £5,750,000.
The changes to the SDLT effectively implements the “mansion tax” which is being debated, but for the tax being an easily administered “one-off” tax triggered by the purchase of the property as opposed to an annual tax, the administration of which would be more complex and costly.
For more information on this topic or any other tax issues, please contact our specialised tax partner, James Wolfson, on 01273 685 888 or email firstname.lastname@example.org.