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Stamp Duty Land Tax (“SDLT”) : revised structure, rates and thresholds for residential property
Changes to the Stamp Duty Land Tax (“SDLT”) charging system have received much publicity since the statement, largely due to the significant saving which they offer to those purchasing properties worth less than £937,500.
The previous ‘slab’ system levied SDLT at a single rate on the whole chargeable price of a property according to the band, or ‘slab’ into which the price fell. This resulted in significant tax charges on properties at the lower and middle end of the market, and often caused market distortions where the potential selling price of a property was valued around a threshold limit.
The old ‘slab’ system has been replaced by a new banding system which allows only the value which falls within each band to be charged at the band rate.
The residential SDLT rates applicable under the old rules will be replaced with the following bands.
Property value band SDLT rate
£0 to £125,000 0%
Over £125,000 to £250,000 2%
Over £250,000 to £925,000 5%
Over £925,000 to £1.5 million 10%
Over £1.5 million 12%
For example, under the old rules, the SDLT charge on a residential property bought for £450,000 would be £13,500 (the entire consideration would be taxed at 3%). Under the new rules, the SDLT charge would be £12,500 (the first £125,000 would be taxed at 0%, the next £125,000 at 2% and the final £200,000 at 5%).
The effective rate of tax for properties with a chargeable consideration of £937,500 or less will be lower, or the same as, the effective rate of tax under the old rules. However, there will be an increase in the effective rate for most higher value properties. For example, a residential property bought for £1.25 million under the old rules would attract SDLT of £62,500 (effective rate 5%). Under the new rules, the charge would be £68,750 (effective rate of 5.5%).
The new rules apply only to residential property transactions with an effective date on or after 4th December 2014, and the buyer may allowed to choose in certain very specific circumstances – as part of transitional arrangements in place – whether to apply SDLT under the old or new system. Non-residential, mixed property and enveloped dwellings are unaffected – please ask us for details.
For further information about how the changes apply to your property transaction please contact Christopher Johnson, Judith Bleetman or Lucy Thomas at our Cockfosters office at firstname.lastname@example.org or on Tel 020 8441 1556