How stamp duty affects you?

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The changes to stamp duty affects the asking price for the majority of properties, not just those around the old thresholds.

Nick Barnes, Head of Research

Designed a vote winner and perhaps as a response to Labour’s threat of a Mansion Tax, the Chancellor revised the stamp duty system in December by moving away from the old “slab” system to a “progressive” one and announcing a revision to the thresholds and tax rates applicable, as shown below. 

These  reforms mean that the barriers created by the old thresholds are removed. Home buyers are now charged in a tiered system and, as a result, only pay the higher rate of tax on the proportion of the purchase price over the threshold. For example, if someone purchases a property for £600,000 they would be charged 0% tax on the first £125,000, 2% on the next £125,000 and 5% on the final £350,000 – bringing the total tax due to £20,000 – whereas under the old system, they would have had to pay a flat  4% of £600,000 – i.e. £24,000 .

The new stamp duty thresholds and applicable tax rates came into effect from 4th December 2014 and are now as follows: 

• Up to £125,000 = 0%
• Above £125,000 and up to £250,000 = 2%
• Above £250,000 and up to £925,000 = 5%
• Above £925,000 and up to £1.5m =10%
• Over £1.5m = 12%

For the stamp duty calculator please follow this link 

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What Do The Changes Mean for You?
The Stamp Duty threshold plays an important role in how properties are valued and marketed. The previous system distorted the market by making it very unattractive to buy a property for a price just above the stamp duty thresholds of £250,000, £500,000, £1m, £2m because the entire value of the purchase was taxed at one rate – this was referred to as a slab system.

The overhaul of stamp duty from a slab system to a progressive system has been widely welcomed and buyers of properties below £937,500 now pay less stamp duty than under the previous structure. This is expected to lead to an increase in demand for sub-£1 million properties in 2015 and, as buyers and estate agents will no longer be concerned by the old £250,000 and £500,000 valuation thresholds, owners of properties previously priced just under these thresholds may now find that they can be marketed at a higher price. 

However, the new rates mean that anyone purchasing a property with a value above £937,500 will have to pay more (with the exception of a small window between £1m and £1.125m). For instance, those buying a property at £1.5 million will be paying 25% more than previously, whilst buyers of £2m properties will be paying over 50% more.  Vendors of properties priced above £1.5m are therefore expected to come under pressure to reduce their asking prices to attract buyers who now have to factor in substantially higher stamp duty liabilities.

The changes to stamp duty are likely to affect the asking price for the majority of properties, not just those priced around the old thresholds. It is therefore advised that homeowners get an up to date valuation of their property before making any decisions about selling or purchasing in the future. 

Even if you don’t have any immediate plans, Chestertons’ experienced agents are always happy to discuss your personal situation and provide an accurate valuation of your property in the current market – simply contact your local office or call 020 3040 8620.


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Nick has more than 20 years’ experience within the property research arena.

Nick Barnes

Nick Barnes

St Magnus House

020 3040 8406