Yesterday, the Chancellor of the Exchequer in his Autumn Statement announced changes to Stamp Duty designed to make the system more proportionate across the UK.

These changes came into effect immediately at midnight (4th December) and mean what house buyers will pay in terms of taxes on their property purchases will alter from this point. It appears that anyone who has exchanged contracts but not completed by last night will be able to choose whether to pay under the old system or the new, so no-one in the middle of moving house should lose out.

The new rates, compared with the old rates, are as below.

stamp duty table

What this means

Effectively, the changes mean that the vast majority of sales will pay less tax. What the Treasury labels the ‘average Help to Buy home’, at £185,000, will pay £1,200 under the new system compared with £1,850 under the old. The ‘average family home’, at £275,000, will pay £3,750 under the new system compared with £8,250 under the old.

However, the rates around the £1 million mark bear closer consideration. If you are paying under £937,500, you will definitely make a saving. Properties priced in the £950,000 to £1 million bracket will pay more, while properties priced £1 million to £1.1 million will pay slightly less. However, all properties over £1.125 million will pay more, as illustrated below.

new stamp duty versus old stamp duty chart

What this means for Scotland

This can be contrasted with the new system in Scotland, due to take effect in April 2015, which is replacing Stamp Duty with Land & Buildings Transaction Tax, or LBTT. If you are buying a property in Scotland from midnight on 4th December to when LBTT is introduced, you will pay the new Stamp Duty rates. After that, you will pay LBTT.

lbtt table

In Scotland, the level at which you will be paying more in LBTT compared to Stamp Duty has now reduced to £253,000. The savings for house purchases below this level have also been reduced. For example, taking the £185,000 example above, under LBTT, a purchaser would pay £1,000 in LBTT, a saving of just £200. However, those purchasing a house worth £510,000 would pay £28,300 in LBTT compared to just £15,500 under the new Stamp Duty, a difference of 83%.

new stamp duty versus lbtt chart

For those in the middle to upper ends of the housing market in Scotland, LBTT could be fairly punitive, whereas those at the lower rungs of the market are unlikely to save much. This has implications regarding whether LBTT can be revenue neutral in Scotland, as the Scottish Government intends, if it stalls the higher rungs of the market while doing little to stimulate the lower rungs.

Rettie & Co have argued for additional bands between 2% and 10% under LBTT to make the tax less punitive for the likes of those buying family homes in strong employment areas such as in and around Edinburgh and Aberdeen.

This argument now appears much more pertinent. After April 2015 those purchasing properties of the same value in Scotland and other parts of the UK will face different levels of property tax, which will vary markedly once they are valued over £300,000. This may have implications for:

  • House builders’ decisions on where to build;
  • Employers’ decisions on where to locate;
  • Families’ decisions on where to live.
  • It requires close watching for its effects.