THE ARM AND TWO LEGS EFFECT OF STAMP DUTY LAND TAX (SDLT)

By Clare Munro, Tax Partner 
020 7490 7766
claremunro@lubbockfine.co.uk

Stamp Duty has become somewhat controversial and something of a minefield since the government’s wholesale changes made last year. Effectively, the top rate payable shot up from 7% previously, to 12% on properties valued at £1,500,001 and above. Estimates suggest that more than 40% of SDLT revenue comes from within the M25 which skews the tax toward transactions in London and the South East.

A further change is that SDLT is now charged on a “slice” basis rather than a “slab” basis as it was previously. So, there is now 0% to pay up on a purchase price of up to £125,000, then 2% on £125,001 to £250,000, 5% on the next tranche and so on up to 12% on the balance over £1,500,001. The government recognises the added complexity and now has online calculators which work out the amount of SDLT payable. The calculators can be found at www.gov.uk/stemp-duty-land-tax-calculators

The overall effect of the new system is that SDLT has been cut for 95% of UK buyers whose homes are worth less than £1m, but has rocketed for those buying more expensive properties. And in April 2016, an SDLT surcharge, of three percentage points above the applicable SDLT rate, was brought in for anyone buying a second home, which added three further percentage points to the rates they would have otherwise paid. 

Official figures show that £7.7bn was raised from SDLT during the first eight months of the 2016-17 financial year (source: HMRC) which is 12% more than was raised during the same period the year before. This is partly due to an approximate 7% rise in the overall value of properties in that time, and partly due to the new, higher SDLT rates.

On the flip side, there has been a 10% drop in the number of homes being sold in the UK. But even if that trend continues, the Treasury’s revenue from the tax, for the moment, may still exceed the previous record of £10.7bn raised during 2015-16.

It isn’t, though, quite the utopia the Government might have envisaged. These changes are now depressing the number of transactions at the top end of the market and property commentators warn that this might eventually feed into the government’s tax take.

Despite this direct impact on transactions at the top end of the market, there is little sign of the Chancellor rethinking the rates applicable to buyers of the most expensive properties. However, the number of all London transactions has dropped year on year by almost 40% which will inevitably create a gap in the chancellor’s accounts in due course.

For a complete explanation of SDLT, please download our Fact Sheet here or feel free to speak to your contact partner or to Clare Munro.

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