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Stamp Duty Reform a Positive Boost to Housing Market

George Osborne has announced stamp duty reforms which will effectively save 98% of home buyers money when purchasing a property. He has dropped the badly-designed and widely-discredited ‘slab’ tax and instead introduces a graduated rate working in a similar way to income tax. Only people who buy homes worth more than £937,000 will pay more in tax.

Stamp duty, which currently operates throughout the UK, charges successively higher rates on the whole of the purchase price. For this reason it is often criticised as a “slab tax”. Its structure means there are sudden increases in stamp duty, when the price goes above the next threshold.

For example, someone buying a home for £250,000 would currently pay £2,500, or 1%, in stamp duty. But if the price was £1 more, they would pay an extra £5,000, as they then pay 3% on the whole purchase price.

From midnight on 3rd December, the new rates of stamp duty will only apply to the amount of the purchase price that falls within the particular duty band, making it more like income tax.

In other words, someone buying a house for £200,000 will pay nothing on the first £125,000, and then 2% of the next £75,000, giving them a bill of £1500. Previously they would have paid 1% on the total purchase price, giving them a bill of £2,000. Thus although the percentage rates appear higher in some cases, the overall charge will mostly be lower.

The new rates will be

  • Up to £125,000 : 0%
  • £125,001 to £250,000 : 2%
  • £250,001 to £925,000 : 5%
  • £925,001 to £1.5m : 10%
  • Above £1.5m : 12%

On average, someone buying a home in England and Wales will now pay £4,500 less in stamp duty. The new system will also smooth out the steps – or sudden jumps – in existing stamp duty thresholds.

Zoopla took the line that the new duty regime would mean sellers would no longer have to artificially price up or down their homes to avoid so-called ‘dead zones’ – those price areas close to the old stamp duty thresholds where sellers found buyers particularly resistant to pay. Sellers in future “won’t be forced to discount their properties to sneak under certain bands” according to the portal’s spokesman Lawrence Hall.

Sources Estate Agent Today and BBC Websites