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Briefings

Member Note: Autumn Statement heralds major reform of Stamp Duty

Date: 03/12/14

Autumn Statement heralds major reform of Stamp Duty

  • Radical overhaul of Stamp Duty on residential transactions
  • Increase in Annual Tax on Enveloped Dwellings
  • Employers’ National Insurance Contributions abolished for young apprentices from 2016
  • Shared ownership
  • Planning
  • Recent announcements on infrastructure

Note: to view the tables, it is best to view on a browser, please click here 

Radical overhaul of Stamp Duty on residential transactions

The Chancellor, George Osborne, has used today’s Autumn Statement to announce a fundamental overhaul of the Stamp Duty regime for residential transactions that will take effect immediately and result in an overall cut in Stamp Duty for an estimated 98% of buyers.

From midnight tonight the “slab system” which involved purchasers paying the relevant Stamp Duty rate on the whole purchase price is to be replaced so that Stamp Duty rates will only apply to the part of the property price that falls within each band, similar to the structure of Income Tax.

The Chancellor made reference to the Opposition’s proposals for a so-called ‘Mansion Tax’, and characterised today’s reforms as being fairer than an annual charge on high value homes. Calling the current Stamp Duty structure “a badly designed tax on aspiration”, Mr Osborne went on to say that the reforms will “increase the taxes on the most expensive 2% of homes, but only asks people to pay that tax when they buy the house and they have the money”.

Instead of large rises at each band, the effective rate of Stamp Duty will now rise steadily which will remove distortions in the market. For instance, under the current regime, the Stamp Duty on a residential transaction of £250,000 would be levied at the 1% meaning that the buyer paid £2,500 but a transaction for £250,001 would move into the higher 3% tax bracket and incur a Stamp Duty payment of £7,500. In reality this means that very few transactions currently take place just above the existing thresholds.

Buyers who have exchanged contracts before 4th December but complete on or after that date will be able to choose whether to pay Stamp Duty under the old regime or with the new rules applied to their purchase.

The new bands will mean that for the average purchaser, buying a home of around £275,000, 0% will be paid on the first £125,000, with 2% levied on the amount between £125-250,000 and 5% on the £25,000 above that amount. This would involve an overall payment of £3,750 (at an effective tax rate of 1.4%) instead of £8,250 under the current system (at an effective tax rate of 3%).

New Stamp Duty bands

Property value

Tax rate charged on part of property price within each band

£0-125k

0%

£125-250k

2%

£250-925k

5%

£925k-£1.5m

10%

£1.5m +

12%

Buyers of properties up to £937,500 will pay less in Stamp Duty under the new arrangements but the effective tax rate for sales above that amount will be higher, for example, a £2 million residential transaction will incur an effective tax rate of 7.7% rather than the current 5% and will pay £53,750 more in Stamp Duty.

Please see the table below for a summary of effective tax rates and what this will mean for properties of different prices. The overall reform will result in a net cost the Exchequer of around £800 million per year by 2016/17.

Development land transactions remain unaffected by today’s announcements.

Effective tax rates and changes in Stamp Duty due by property value:

 

Property value (£)

 

Effective tax rate

Change in Stamp Duty due (£)

 

Before 4th December

From 4th December

100,000

0

0

0

150,000

1.0

0.3

-1,000

200,000

1.0

0.8

-500

 Average FTB house price: 

210,000

1.0

0.8

-400

250,000

1.0

1.0

0

 Average house price:

275,000

3.0

1.4

-4,500

300,000

3.0

1.7

-4,000

350,000

3.0

2.1

-3,000

400,000

3.0

2.8

-2,000

450,000

3.0

3

-1,000

500,000

3.0

3

0

 Average London house price: 

510,000

4.0

3.0

-4,900

550,000

4.0

3.2

-4,500

600,000

4.0

3.3

-4,000

650,000

4.0

3.5

-3,500

700,000

4.0

3.6

-3,000

750,000

4.0

3.7

-2,500

800,000

4.0

3.8

-2,000

850,000

4.0

3.8

-1,500

900,000

4.0

3.9

-1,000

937,500

4.0

4.0

0

950,000

4.0

4.1

750

1,000,000

4.0

4.4

3,750

1,500,000

5.0

6.3

18,750

2,000,000

5.0

7.7

53,750

3,000,000

7.0

9.1

63,750

4,000,000

7.0

9.8

113,750

5,000,000

7.0

10.3

163,750

Annual Tax on Enveloped Dwellings

The Autumn Statement also included additional measures to levy higher property taxes on those purchasing and holding homes through corporate envelopes such as companies. Building on measures announced in 2012 and 2013, the Chancellor has decided to increase the Annual Tax on Enveloped Dwellings (ATED) by 50% above inflation. From April 2015, the annual charge on residential properties owned through a company are shown in the table below according to value.

 

Property value

Annual charge from April 2015

£2m-£5m

£23,350

£5m-£10m

£54,450

£10m-£20m

£109,050

£20m +

£218,200

 

Employers’ NICs for young apprentices from 2016

Looking further ahead, the Autumn Statement features a commitment by the Government to abolish employer National Insurance Contributions for apprentices under the age of 25 on earnings up to the upper earnings limit. This is expected to exempt the employers of around half a million apprentices and will take effect from April 2016, just under a year into the next Parliament.

This measure would result in a net loss to the Exchequer in year one of (2016/17) of £115 million rising to £125 million per year by 2019/20.

Shared ownership

In addition to yesterday’s announcement that the Government will launch a consultation on streamlining the process for selling shared ownership properties, the  Autumn Statement includes a commitment to extend the scope of Stamp Duty multiple dwellings relief so that “lease and leaseback” arrangements with housing associations on shared ownership properties also attract the relief.

Planning

As part of its Infrastructure Plan 2014, the Government yesterday published proposals to speed up the end-to-end planning process and has today announced that it will publish new data on local authorities’ performance in meeting statutory duties to process smaller planning applications within 8 weeks and stated that it will ‘work with the industry and local authorities to test whether more can be done to support the approval of small sites in the planning system’.

Recent announcements on infrastructure

In advance of the Autumn Statement, Government ministers have several announcements yesterday relating to new towns and garden cities, affordable housing capital funding, a new target for public land disposals as well as the planning changes and shared ownership consultation touched on above.

You can read more on yesterday’s announcements in the HBF briefing note here.

The Autumn Statement, the Chancellor’s speech and other documents can be found here

A two page factsheet on Stamp Duty, produced by HM Treasury can be found here

David O'Leary, Deputy Director of External Affairs.