Stamp Duty Changes in the UK.
Changes to Stamp Duty
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% SDLT surcharge will apply to purchases of buy to let property and second homes. In Scotland a similar LBTT 3% surcharge will apply 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 before the change meant there were sudden increases in stamp duty liability as the purchase price rose above the next thershold.
This had a negative impact for both purchasers and vendors with costs increasing or values artificially dimishing 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 purchse 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 Stamp duty in Scotland has been replaced by Land and Buildings Transaction Tax (LBTT).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
Changes were announced by the chancellor in his 2015 Autumn statement and came into effect from April 2016. The stamp duty changes introduced a rate increase for buy to let and second home purchases.
From 1st April 2016 a 3% surcharge has been applied to such purchases and a lower initial threshold of £40,000 has been introduced. 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 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 applies 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 is after 1st April 2016, the higher rates will not apply.
If exchange of contracts was after 25th November 2015 then the higher rates will apply if the purchase didn't complete before 1st April 2016.