George Osborne delivered the last Autumn Statement of the current Parliament on Wednesday 3 December 2014. A raft of measures were announced during the Chancellor’s 45-minute speech, as a sizeable proportion of Discreet Law matters are property related, in this article we examine the key announcement associated with the change in property tax.
Stamp Duty land tax (“SDLT”) reform The biggest tax giveaway announced was the reform in SDLT legislation, with the abolition of the “cliff-edge” system. However, the increase in the rates of SDLT also means the mansion tax is now in place, cleverly disguised in a reform of SDLT.
The new regime for residential property, which is effective from 4 December 2014, operates by applying different rates and bands to marginal cost in a similar manner as income tax. Transitional rules apply to buyers who had exchanged contracts but not completed their purchase by 4 December. Under the transitional rules, buyers can choose whether to pay SDLT under the old regime or the new regime
|Property value (£)||Tax rate charge on part of property price within each tax band (%)|
|0 – 125,000||0|
|125,001 – 250,000||2|
|250,001 – 925,0000||5|
|925,001 – 1,500,000||10|
The effect of the new regime means that for properties priced at less than £937,500, buyers will pay less or the same SDLT than under the old regime. However, where properties are priced in between £937,501 and £1,000,000 the SDLT burden will increase however for properties between £1,000,001 and £1,125,000 the SDLT payment will be less or the same as the old regime. For all properties over £1,125,000 the SDLT burden under the new regime will be more than under the old regime. Buyers who have exchanged but not completed on properties by 4 December should opt to be taxed under the old regime where property values exceed £937,500.
Annual tax on enveloped dwellings (“ATED”)
Further announcements were made in relation to the ATED regime which imposes an annual charge on residential properties held by non-natural persons (generally corporates). For instance, a buyer may choose to hold a property under corporate names for privacy and inheritance tax benefit reasons. In order to deter the use of such structures, the Chancellor has increased the annual charge by 50% above inflation for properties valued in excess of £2m. These increases are effective from 6 April 2015 and the new charges are as follows:
|Property values (£)||Applicable charges for 2015/16|
|Over £2m up to £5m||£23,350|
|Over £5m up to £10m||£54,450|
|Over £10m up to £20m||£109,050|
|In excess of £20m||£218,200|
Despite the stamp duty reform, first-time buyers are likely to be worse off because of the boost it will give to house prices according to economists. “As with all property taxes, changes to stamp duty are likely to be quickly reflected in house prices” – Matthew Pointon, property economist at the Capital Economics consultancy.
It is argued that UK property prices will rise due to the fact that the tax savings effectively put all buyers in a more well-off position to acquire property. It has been predicted that the stamp duty changes will increase house prices by circa 1% and as stamp duty is normally paid in cash but higher property prices may add to the buyer’s mortgage, the buyers could also be paying more in interest in addition to the increase in house prices.
In London, the picture is slightly more complex. It has been reported that the share prices of estate agency group Foxtons took a hard hit after the announcement as so many of the properties it lists are in the bracket where the slope of stamp duty actually steepens. The tax due on a £1.5m home will soar from £75,000 to £93,750. Discreet Law awaits to hear our clients’ views on this particular change.