The changes to stamp duty on residential properties announced by the Chancellor in his Autumn Statement will reduce the cost of this tax for the great majority of people but will have severely negative consequences for the value of more expensive properties.
Until 4 December 2014, when the changes came into force, a so-called ‘slab’ system operated, whereby increased rates of tax were applied to the whole value of the property transferred when a trigger value was exceeded. Under this system, a difference of £1 in value could result in an extra tax charge of £5,000.
The new system is progressive, so only the excess over a given tax threshold would bear the higher rate of tax. However, the rates of tax charged have been increased, and houses worth more than £1.5 million will bear a charge of 12% on any amount over that threshold.
Consequently, a property sold for £5 million would bear tax of £513,750, compared with £350,000 previously.
The Scottish Parliament is introducing a similar system with effect from 1 April, but the rates and the thresholds will be different, and the 12% rate will apply to properties valued at over £1 million.
The prospect of a future Labour government introducing a mansion tax would further undermine the investment value of the more expensive residential property, and whereas the figure of £2 million has been mooted for mansion tax, the fact that the top rate of stamp duty bites at £1.5 million might tempt egalitarian politicians to start mansion tax at the same level.
Duncan R Glassey
Senior Partner – Wealthflow LLP
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