Just a few days ago it seemed that George Osborne, the Chancellor of the Exchequer, was being backed into a corner with little room for manoeuvre. There were suggestions that a lack of additional income would effectively scupper his Autumn Statement today although just yesterday evening stories started to emerge of a change in stamp duty tax. So what has George Osborne announced and will this actually make a difference to the average property transaction in the UK?
The simple answer to this question is, yes it will make a difference and those acquiring properties valued at less than£937,000 will pay less in stamp duty. Those with properties worth in excess of this figure will pay more under the new system which comes into play at midnight on 3 December.
How will the new system work?
The main attraction of the new stamp duty system is the fact that rather than paying a set percentage on an overall property transaction value the rate will be staggered across different bands. Under the old system there was no tax to pay on a property worth up to £125,000 yet just one pound over that and you would pay 1% on the total figure. The new system means that the first £125,000 of any property transaction will attract no tax with the portion from £125,001 up to £250,000 attracting a charge of 2%, from £250,001 up to £925,000 would be 5%, from £925,001 up to £1.5 million would attract a rate of 10% and 12% on the part of a transaction above £1.5 million.
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The simple fact is that under the new system any property purchase with a value under £937,000 will attract less tax than it would under the old system.
Why has the government made this change?
Property stamp duty tax has been a bone of contention for many years now because by simply going over a specific band by as little as one pound you can move into a new tax rate which would apply on the total figure as opposed to a staggered system such as that used for income tax. Quite why the authorities have taken so many years to changes is a mystery and you can also compare this to the VAT system which operates on a similar setup.
There is no doubt that a reduction in stamp duty will increase interest in the housing market, a market which has recently shown signs of cooling. Sceptics will suggest that as property is one of the major elements of a modern day family asset a reduction in stamp duty will impact many people – voters in next years election. Also, the idea of increasing the taxes on those with the properties valued at over £937,000 will also deflect from the Conservative Party’s image of a party for the rich.
There is no doubt that George Osborne has played something of a blinder with his change in the property stamp duty system because the Labour Party did not amend this when it was in power and can therefore not criticise. The fact is that those acquiring property for less than £937,000 will benefit which is the vast majority of homeowners in the UK.