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Stamp Duty - the winners and losers

The Chancellor today announced the reform of stamp duty, stating that it would be more beneficial for 98% of UK homeowners. So who will benefit and who represents the 2% of homeowners that will pay more and, if so, how much? These changes will take effect from midnight tonight (3rd December 2014).

The position before today

Until now you did not have to pay stamp duty if you were buying a property that cost less than £125,000. For properties that were more than £125k there was a banding system: 

  • Between £125,001 and £250,000 – 1% charge
  • Between £250,001 and £500,000 – 3%
  • Between £500,001 and £1m – 4%
  • Between £1m and £2m – 5%
  • Above £2m – 7%

Homes that are registered to companies have different rates about £500,000. This has been commonly seen as unfair because if you slightly fall into one category you pay tax on the full purchase price on the higher rate. These reforms change the position.

What has changed?

From midnight tonight stamp duty will be applied like income tax.

Whatever the purchase price you will not pay any tax on the first £125,000.  Once you purchase above this price there will be a banding structure and you only pay tax on the amount that falls into each band.

  • Between £250,001 and £925,000 the rate will be 5%
  • Between £925,001 and £1.5m the rate will be 10%
  • Between £125,001 and £250,000 the rate will be 2%
  • Above £1.5m the rate will be 12%

On a £200,000 house purchase there will be no tax to pay on the first £125,000, then 2% on the remaining £75,000, which is a total bill of £1,500, versus £2,000 before the changes.

On a £325,000 house purchase there would be no tax to pay on the first £125,000, then 2% on the next £125,000 (£2,500) and 5% on the last £75,000 (£3,750). That’s a total £6,250 compared with £9,750 under the previous system.

Will everyone be a winner?

Unfortunately not. If you are buying a house costing less than £937,000 which represents about 98% of households you will pay less. Anyone spending more will face a higher bill. If you are spending £1.75m on a home you will pay £123,750 under the new regime compared with £87,500 previously.

How does Scotland compare?

The lowest rate of tax kicks in earlier, but after that it is much more generous. In Scotland from April 2015 stamp duty is being replaced by Land and Building Transaction Tax (LBTT), which will be applied like income tax. There will be a tax-free allowance of £135,000 on each transaction. Above that there are three bands:

  • Between £135,001 and £250,000 the rate is 2%
  • Between £250,001 and £1m it is 10%
  • Above £1m the rate is 12%

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