Osborne announces complete reform of stamp duty tax

The Chancellor of the Exchequer, George Osborne, announced today (3 November) that stamp duty will only apply to the part of a property price that falls within that band, in a overhaul of the stamp duty tax.

Homebuyers will no longer pay tax on the first £125,000 of a property, followed by 2 per cent on the amount up to £250,000, 5 per cent up to £925,000, 10 per cent up to £1.5 million and 12 per cent on everything over that.

The 12 per cent tax on properties worth over £1.5m represents an increase of 5 per cent, leading some commentators to suggest that this is the Conservative party's own version of a mansion tax.

Mr Osborne said that the changes to the stamp duty will save tax payers almost £800m a year, and is a measure which he says will cut stamp duty for 98 per cent of homebuyers, in changes which will take effect at midnight.

He described the changes as "a complete reform of a tax that has been described as one of our worst-designed and most damaging of all taxes".

Mark Hayward, managing director of National Association of Estate Agents commented: "National Association of Estate Agents is very pleased that the Chancellor has listened to our proposal on stamp duty and reviewed the cumulative slab system to abolish it and introduce a gradual band tax. As the Chancellor said, these measures will help the majority of buyers. Only those paying more than £937,500 will pay more stamp duty than under the current system.

"Pinch points have been addressed to help first and last time buyers and make buying and selling more affordable - the changes will help many first time buyers to get on the property ladder. In addition, we also expect the changes to help balance the seesaw of supply and demand in the current market.

"With the reforms to stamp duty in place from midnight tonight, the housing market will now be about affordability, availability and accessibility, in terms of mortgage funds and lending criteria, as well as achievability - the new reforms will now allow greater movement for house buyers and sellers in the UK property market."

Rushed changes

“The reforms to stamp duty taxation appear to be both robust and rushed, with plans for the reforms to go into effect within hours of today’s Statement. The shift toward a more progressive – and some might say punitive – system of taxation when it comes to purchasing a home is profoundly notable. 

"No doubt that political calculus is playing a significant role in this particular announcement, given the Tories’ desire to head a proposed Mansion Tax off at the pass.

While Charles Beer, managing director of Alvarez & Marsal Taxand UK, said that the higher rate of tax on properties worth over £1.5m could act to further cool the UK housing market, as the rates are far higher than global standards.

“For properties at the top end of the market, the rates are now very high by international standards. This will impact the central London market disproportionately and could have the effect of continuing the slow-down in growth we have witnessed over recent months. 

“Even outside the centre, a normal family house in inner London can now cost substantially more than £1m, and the new rates of duty will only increase this further”.

Anyone currently in the process of buying a property will be able to choose whether they want to use the new or the old system.

Binyamin Ali is assistant editor of Private Client Adviser