One of the headlines arising from the Chancellor’s recent Autumn Statement is the reform of Stamp Duty on residential property. This will undoubtedly have caught the eyes of homebuyers and homeowners alike, as the statement is that Stamp Duty will be cut for 98% of people who pay it.
Stamp Duty on residential property now works on a banded system, in much the same way as income tax. This is in contrast to the old system, where Stamp Duty would be paid at a single rate on the entire purchase price. This system was deemed inappropriate by many, as a very small increase in a purchase price could give rise to a very large increase in Stamp Duty.
For example, under the old system, the Stamp Duty payable on a residential purchase at £250,000 was at 1% on the entire price, i.e. £2,500. The Stamp Duty on a residential purchase at £251,000 was at 3% on the entire price, i.e. £7,530. This is a significant increase and exceeds the increase in the actual purchase price.
Under the new system, the Stamp Duty payable on a residential purchase at £250,000 remains £2,500. However, the method of calculating this figure has changed. Up to a purchase price of £250,000, Stamp Duty is payable at 2% of that price above £125,000. Therefore in this example, Stamp Duty is payable at 2% of £125,000, i.e. £2,500.
On a residential purchase of £251,000, Stamp Duty remains payable at 2% of the price above £125,000 and up to £250,000, i.e. £2,500. The remaining £1,000 falls into the next band which is at 5% up to £925,000. 5% of £1,000 is £50. Therefore, the total Stamp Duty liability is now £2,500 plus £50, totalling £2,550. This is a significant reduction from the Stamp Duty that would have been payable under the old system.
Please contact our Residential Conveyancing Team for further information.