Autumn Statement 2014: A new progressive tax system for Stamp Duty Land Tax

Stamp Duty Land Tax (‘SDLT’) on residential properties has historically operated on a ‘slab’ system, meaning that a single rate of tax is charged on a purchase, depending on which charging band the property falls within. For example, a property valued at £510,000, (the average house price in London) would pay 4% on the total consideration, resulting in SDLT of £20,400.

For transactions effected after midnight on 3 December 2014, new SDLT rates will apply. Unlike the current system, these rates will be progressive, meaning that only the proportion of the consideration which falls within the particular band will be subject to that rate of tax. There will be five bands, ranging from 0% for consideration below £125,000 to 12% for consideration in excess of £1.5m. For a property valued at £510,000, the SDLT will be £15,500 (£125,000 x 0% plus £125,000 x 2% plus £260,000 x 5%), £4,900 less than under the current rates.

For transactions that have exchanged before 4 December but have not completed, there are transitional rules, which broadly will allow the taxpayer to elect to apply the old rules and rates if they wish rather than the new regime.

These new rules will also apply to all residential property transactions in Scotland up to April 2015, when SDLT will be replaced in Scotland by the Land and Building Transaction Tax, which is to be a progressive rate tax.

There have been no changes to the slab system and SDLT rates that apply to commercial properties. There have also been no changes to the SDLT rate that applies to transactions falling within the scope of ATED regime (which remains at 15% for dwellings valued at over £500,000).

All those purchasing residential property for less than £937,500 will pay less SDLT under this new regime. The Government has indicated that this should mean that 98% of all house purchases will now pay less SDLT. As well as being welcomed by home owners, these rate reductions will also be applicable to portfolio residential purchasers who elect to use multiple dwellings relief (available where 2 or more dwellings are purchased) and therefore could represent significant savings, provided that each of the average dwellings is valued at less than £937,500.

This reduction in SDLT will particularly benefit first time buyers and those purchasing property at the lower end of the market, where the greatest reduction in SDLT charge arises. The removal of the slab scheme should also eliminate the ‘cliff edge’ effect and market distortion that currently exists in the pricing of properties, around the changes in SDLT banding rates.