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Stamp duty land tax

Changes to rates and threshold

With effect from 25 March 2010, an exemption from the one per cent SDLT charge will be available to first time buyers of residential property with a value of up to £250,000. The relief will be available for a period of 2 years.  This will be an immediate tax saving of £1,250 on a property bought for £249,999 as the previous threshold was £125,000. 

In order to finance the new relief, the rate of SDLT charged on purchases of residential property over £1m will be permanently increased to 5 per cent with effect from 6 April 2011. Treasury figures show that whilst the increase in rate of SDLT will raise £70 million this will only go a short way to funding the SDLT holiday for first time buyers.

Comment

The doubling of the nil rate band for SDLT on residential property is a welcome measure for first time buyers and will serve to boost the residential market in certain areas of the country.

However it is likely to cause some distortion in the market for properties valued at around £250,000 particularly since residential properties above the £250,000 threshold will still be subject to SDLT at 3 per cent. There will be an obvious reluctance on the part of buyers to pay an additional liability of £7,500 for properties valued at £250,001 and above and it is conceivable that affected vendors may be compelled to either drop prices or arrange transactions so as to receive a part of the sale consideration in a non-stampable form.

It is regrettable that the Chancellor has opted not to reform the "slab" system of stamp duty rates which gives rise to this anomaly. One also wonders how HMRC intend to monitor:

  • who is a first time buyer
  • that the buyer firmly intends to occupy the property as their only or main home, and
  • that an individual has never previously owned a property anywhere in the world. 

The increase in SDLT on residential properties over £1m is likely to adversely affect the housing market particularly in the South East of England where the purchase of a large home will attract an additional £10,000 in SDLT.  However, at the very top end of the market and in relation to "trophy" assets the increase in SDLT is unlikely to have any significant impact.

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