Stamp duty changes
22 July 2010
In what turned out to be Alastair Darling’s final Budget on 24 March, he decided to focus on optimistic growth forecasts with relatively few changes to the tax system in a bid to save his party from election defeat. This left the difficult decisions as to how to tackle the current budget deficit through control of public spending and taxation to be made after the general election; a problem he has now handed over to George Osborne.
Alistair Darling did, however, make two relatively major announcements in March with respect to stamp duty land tax ("SDLT") and these remain in place despite the new Coalition Government. For the next two years (until 25 March 2012), first time buyers will be able to purchase a residential property for up to £250,000 with no SDLT at all. However, coupled with this, it was announced that there is to be a permanent increase in the highest rate of SDLT which is currently set at 4% for properties in excess of £500,000. From 6 April 2011, a new band will be introduced which will mean that an SDLT rate of 5% will be payable in respect of residential properties over £1 million.
The first time buyer relief may encourage relatively well-off parents to help their offspring onto the property ladder but it may be that same group of parents who are the people most likely to be caught by the new 5% rate. This new rate produces a dichotomy between residential and commercial properties and is more than likely to encourage activity within the £1 million plus bracket of the residential market within the next year before the rate increase hits. As the increase in revenue is not single-handedly going to make much of a difference in reducing the size of the budget deficit, one can only assume that it was perhaps simply a measure to prevent the current revival of the housing market from stalling.
There are, however, a few pitfalls to watch out for. If you are thinking of buying a property worth over £1 million "off-plan" in the next year, be careful because depending on when the development is ready, you may find yourself paying more SDLT than you anticipated. Also, if you think you fall within the definition of a "first time buyer" it would be worth double checking before assuming you are eligible for the SDLT relief. The definition will exclude those who have previously purchased or inherited a property whether in the UK or elsewhere. It also excludes those who are buying a property for the first time but are buying it jointly with someone who has previously owned a property (although there are certain shared ownership arrangements which will be able to benefit from the relief). This may mean some careful planning for couples purchasing a property together and it may be appropriate for the purchase price to be provided wholly by the party who has not previously owned a property with a declaration of trust declaring how the property is held beneficially.
For further information please contact Alastair Morrison on +44(0) 117 939 2258 or by e-mail on firstname.lastname@example.org or Clare Henderson on +44(0) 117 307 6858 or by e-mail on email@example.com