Changes to Stamp Duty

On December 4th 2014 stamp duty on property purchases was reformed by the Government.

At the time the Chancellor George Osborne stated around 98% of purchasers in England and Wales would pay less after stamp duty reform. Changes to stamp duty meant people who buy homes for under £937,000 would pay less in tax when compared to the old system.

From April 2016 a 3% Stamp Duty Land Tax surcharge has applied to purchases of buy to let property and second homes. In Scotland a similar LBTT 3% surcharge applies to additional property transactions from April 2016.

Old Stamp Duty System

With the old system before December 2014, stamp duty was considered to be a “slab tax” where higher rates were incremented and applied to the whole property purchase price.

The old system meant there were sudden increases in stamp duty liability as the purchase price rose above the next threshold.

This had a negative impact for both purchasers and vendors with costs increasing or values artificially diminishing around each threshold.

New Stamp Duty System

Since December 2014 the tax system has become “progressive” and rate increases are applied between stamp duty thresholds only.This means stamp duty rate increases are no longer applied to the whole purchase price.

Because of this progressive nature, the new system has been compared to income tax. The updated stamp duty thresholds range from £125,000 to £1.5 million.

Changes to Stamp Duty in Scotland

Following on from changes to Stamp Duty in England Wales and N.Ireland, stamp duty in Scotland was reformed on April 1st 2015. Stamp duty in Scotland has been replaced by Land and Buildings Transaction Tax (LBTT).

LBTT in Scotland works in a very similar way to Stamp Duty in the rest of the UK. LBTT is a progressive tax with slightly different thresholds ranging from £145,000 to £750,000.

Buy to Let and Second Homes

Levels of stamp duty for buy to let property and stamp duty for second homes has now changed.

Changes were announced by the chancellor in his 2015 Autumn statement and came into effect from April 2016. The stamp duty changes introduced a significant rate increase for property being purchased in addition to a main residence.

From 1st April 2016 a 3% surcharge has been applied to buy to let and second home purchases with a new lower initial threshold of £40,000. Given that the vast majority of second home purchases fall outside this threshold, more transactions will now attract stamp duty than in previous years.

Anyone who purchases a property with an expat mortgage in addition to their main residence is now liable for the surcharge even if the property is not let out.

In Scotland LBTT rates have also increased for purchasers of second homes. The 3% LBTT surcharge was introduced at the same time as the rest of the UK.

To compare SDLT calculations before and after April 2016 please visit our buy to let stamp duty page.

Key Dates for Exchange & Completion

The higher SDLT rates apply to purchases of buy to let and second homes with a completion date on or after 1st April 2016.

If contracts were exchanged before the Autumn statement on 25th November 2015, but the completion date was after 1st April 2016, the higher rates should not apply.

If exchange of contracts was after 25th November 2015 then the higher rates apply if the purchase didn’t complete before 1st April 2016.

Budget 2017

No major stamp duty changes were announced in the spring budget on March 8th 2017.