Jo Farr Blog

Stamp duty reform: The winners and losers

With the significant reforms of Stamp Duty Land Tax (SDLT) in the Autumn Statement at the end of last year and the continued debate over the housing crisis, 2015 will undoubtedly be an interesting year for the UK property market.

The introduction of the new layered' system is a welcome tax break for 98% of the home owning population in the UK. The new progressive system means that purchasers of homes costing less than £937,500 will benefit from a lower tax bill. On the other hand, properties sold for £1m and above will now be faced with a larger stamp duty rate, with the proportion of the property's value over £1.5m being charged at the highest rate of 12%, relative to the previous highest rate of 7% (which was applicable to properties over £1m).

The Centre for Economics and Business Research predict that the number of homes now required to pay more stamp duty is plotted to rise to nearly 250,000 by 2020 (if house prices follow the expected projectile).

The reforms will have a variable impact across different regions of the country and even within regions. Savills recently carried out analysis showing that homebuyers in 15 local authorities across England and Wales will pay more stamp duty under the new system, out of these, 12 authorities are in London.

Of the anticipated £220m extra raised each year, over half is expected to come from two London councils; Kensington and Chelsea and Westminster. Surrey is also set to see an increase in SDLT as it boasts 75% of the most expensive streets in the South East, demonstrated by the £1m average house price in Virginia Water. However, not too far away, residents of Horsham, a market town in West Sussex, will be some of the country's biggest winners with an average drop of £1,894 in SDLT.

As the concerns over the lack of affordable housing persist, particularly in relation to London and the commuter belt, prospective buyers will no doubt be mulling over the impact of the SDLT reforms. The number of 30 year olds who are escaping London in search of a more affordable family home is reaching unprecedented heights. An insight into which areas of the South East are going to see the biggest benefit of the reforms will no doubt be valuable when advising those migrating out of the capital.

The saving, that for some will be in excess of £2,000, will free up finance to cover administrative costs, including surveys and conveyancing, which are of course necessary parts of the buying and moving process.

With the legacy of the reforms still unknown, the property industry waits with baited breath to see what 2015 will bring as political, economic and business performance all contribute to the rise or fall of the market.

One concern that agents are already voicing is the prospect of SDLT rates reflecting the turbulence of the market. The rate reforms in the Autumn Statement are expected to be set for five years, meaning the impact of the tax changes will grow over time. It is unlikely, however, that the thresholds will increase in-line with house prices.

*Jo Farr is Partner at law firm Barlow Robbins and head of the firm's commercial property team in Guildford