Stamp Duty reform 2014

This year is ending with a reformation of the stamp duty affecting all buyers of residential property since the 4th December 2014. Buyers who have exchanged contracts before this date can choose if they want to use the old or new system. The old slab system gets replaced by a new system where the rates of stamp duty apply to the amount of the price that falls within the particular duty band. This new format is similar to the income tax.

The new rates are:

Up to £125,000: 0%
From £125,001 to £250,0002%
From £250,001 to £925,0005%
From £925,001 to £1,500,00010%
Above £1,500,00012%

 
Comparing to the old system:

The old system was a slab system with the following rates:
For properties up to £125,0000%
For properties up to £250,0001%
For properties up to £500,0003%
For properties up to £1,000,0004%
For properties up to £2,000,0005%
For properties over £2,000,0007%

 
To see how the new rates are affecting the amount of stamp duty you will pay, here are some examples:
 
1. You are interested in buying a property for £350,000:
Old system: £10,500 with a tax rate of 3% on the whole property
New system: 0% on the first £125,000 + 2% on the next £125,000 + 5% on the remaining £100,000 = £7,500
Your effective tax rate is now 2.1% and you save £3,000.

2. You are interested in buying a property for £510,000:
Old system: £20,400 with a tax rate of 4% on the whole property
New system: 0% on the first £125,000 + 2% on the next £125,000 + 5% on the remaining £260,000 = £15,500
Your effective tax rate is now 3% and you save £4,900.

3. You are interested in buying a property for £1,500,000:
Old system: £75,000 with a tax rate of 5% on the whole property
New system: 0% on the first £125,000 + 2% on the next £125,000 + 5% on the remaining £675,000 + 10% on the remaining £575,000 = £93,750
Your effective tax rate is now 6.25% and it means an increase of £18,750

The Government (HMRC) released a stamp duty calculator. Find it here…