Christmas has come early for home buyers as Father Christmas, otherwise known as George Osbourne, has lavished gifts onto the housing market. He has reformed stamp duty and in the process cut taxes by 800 million pounds per year in this area.
He has changed stamp duty on houses from a slab system which charges homebuyers a percentage of the full purchase price, to a sliced approach with different percentage rates charged at each portion of the price. As previously there will be no tax for properties under £125,000, then 2% up to £250,000, 5% up to £925,000, 10% up to £1.5 million and 12% over this amount.
The new approach is modelled on the income tax system, meaning each rate will only apply to the part of the property which falls within that band. It reduces the stamp duty for 98% of homebuyers, with only 2% buying homes over £937,000 paying more.
The slabs to slices new system will make for significant savings throughout the housing market particularly as we start to enter thresholds on the old scheme. For example, on the old scheme at prices over £250,000, stamp duty on the property jumped from 1% to 3% on the whole amount. Taking the UK average purchase price of £275,000 on the old system £8,250 stamp duty would be paid, whereas on the new system this falls to £3,750, a saving of £4,500.
Personally, I think that overall these reforms are to be welcomed as the new system, I believe, is fairer, but I am unsure whether the new savings on stamp duty may only be paid for by homebuyers with increased house purchase prices. The reason for this is that buyers will not be able to negotiate prices down from say £260,000 to £250,000 as easily as before by pointing to the slab system kicking in at over £250,000; so rather than paying thousands more for stepping over £250,000 the cost for paying £260,000 would be an extra £500. Also, I feel that estate agents when bringing properties to market will not feel hemmed in as much as before when pricing properties.
Finally on a scrooge-like note, although I have mentioned I welcome the reforms, I question why it should cost over 800 million pounds even if this is hopefully going to be clawed back with larger tax bills to large corporations and banks. I feel that allowing people to be better off buying properties up to £937,000 was perhaps a little too generous even with Christmas approaching.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages and investment advice. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett Financial Services would like to wish you all a merry Christmas and a happy new year.
Kieron Bassett DipPFS
8th December 2014
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