The process of buying a house has undergone an overhaul with the wholesale reform of the stamp duty system. Before the changes implemented in the 2014 Autumn Statement, stamp duty was paid at a single rate on the entire price of the property. While 75% of house purchases in England and Wales incurred stamp duty during 2013, this figure rose to 98% in London.
Stamp duty has been modified eight times in the last two decades, the coalition government has now scrapped the ‘slab’ structure and introduced a new tiered system, similar to income tax, in which higher rates of duty are charged in incremental steps.
No stamp duty will be paid on the first £125,000 of a property’s cost
2% will be payable on the amount between £125,001 and £250,000
5% will be payable on the amount between £250,001 and £925,000
10% will be charged on the amount between £925,001 and £1.5m
Anything above £1.5m will incur stamp duty of 12%
As a result, 98% of house-buyers will pay a lower rate of stamp duty than before, and only those buying properties valued at more than £937,000 will pay more.
Under the old system, for example, a house costing £275,000 would incur stamp duty of £8,250 – however, under the new rules, the buyer will pay stamp duty of only £3,750, saving £4,500. The new system of stamp duty will only apply in Scotland until 1 April 2015, when it will be superseded by Land & Buildings Transactional Tax. Looking ahead, Halifax expects house prices to increase by between 3% and 5% in 2015. This slowdown in growth will be exacerbated by expectations of higher interest rates in 2015 and political uncertainty surrounding the General Election. Nevertheless, the bank believes economic expansion should provide support for housing demand, bolstered by stronger growth in real earnings.