More wiggle room on property sales; with Catherine Davies of Ward Hadaway.
Major changes to stamp duty were announced last month. Property law expert Catherine Davies looks at what it means for home buyers.
THE Chancellor announced substantial changes to the calculation of Stamp Duty Land Tax in his Autumn Statement on December 3. As from December 4, a new system of SDLT - stamp duty - applies to residential property which introduces payments on a graduated scale, similar to that seen with payments of income tax, rather than on a flat scale payable on the full purchase price.
The previous system resulted in significant increases in duty when the purchase price exceeded a certain threshold. For example, the sale of a house for PS250,000 would have incurred stamp duty of 1%, or PS2,500, whereas a purchase of PS251,000 would have meant tax of 3%, or PS7,350.
This method of calculation was often restrictive for sellers trying to achieve the best price for their property because purchasers would have the thresholds in mind when negotiating the price and - understandably - try to negotiate below the nearest threshold.
Under the new system there are still bands, but a purchaser will only pay the applicable rate on the portion of the purchase price that lies within any particular band, as follows: Up to PS125,000 - no stamp duty | 2% between PS125,001 and PS250,000 | 5% between PS250,001 and PS925,000 | 10% between PS925,001 and PS1,500,000 | 12% | on anything higher Rates have gone up, but because the method of calculation has changed, this shouldn't cause alarm. For example, on a home for sale at PS560,000, no duty would be paid on the first PS125,000, 2% would be paid between PS125,001 and PS250,000 and 5% between PS250,001 and PS560,000. The tax payable before the changes would have been PS22,400 but under the new system it will be PS18,000, a PS4,400 saving.
HMRC has an online calculator on its website that provides a calculation of the stamp duty payable under each system.
Generally speaking, purchasers who pay less than PS937,500 for a residential property will pay the same or less under the new system and the Chancellor said that 98% of people will be better or no worse off under the new system.
Hopefully, this will mean that there will be more room for the negotiation of the purchase price and sellers will be able to negotiate a sales price that better reflects the true value of their properties without the amount of SDLT being too restrictive for purchasers.
No changes have been made to how SDLT is calculated on purchases of non-residential property or on the rent payable when a new lease is granted. SDLT also remains payable at 15% for purchases by companies of residential properties over PS500,000 with some exceptions.
Catherine Davies is a Solicitor in the Property Department at Ward Hadaway Law Firm in Newcastle, catherine.davies@wardhadaway.
com or tel: 0191 204 4170.
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|Publication:||The Journal (Newcastle, England)|
|Date:||Jan 10, 2015|
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