The Scottish Government launched a consultation on the reform of Stamp Duty Land Tax yesterday (Thursday, 7th June). And it looks like buyers of mid-market properties will bear the brunt of any changes.
You can find the government’s consultation document here. It proposes to raise the point at which the tax is paid to purchases of £180,000 or over – which is great for first time buyers in particular, most of whom would pay not tax at all. It also proposes to abolish the ‘slab’ nature of the tax so that buyers only pay the tax on that part of the purchase price over £180,000 – which sounds sensible enough.
That means, however, that the tax rate paid on the part of the purchase price above the threshold has to be much higher than the current rate. In fact, the government is proposing a tax of 7.5% on any part of the purchase price above that level. And that means that some people buying a typical mid-market home priced somewhere between £200,000 and £250,000 will actually pay more tax under the new system than they do under the current one.
Crunching the numbers (see graph above) shows that most (but not all) people buying a property for £208,000 or over will pay more under the new regime when it comes in to effect in 2015.
Some people, particularly those buying a property just under the £250,000 threshold where the current 3% tax rate kicks in, will end up paying a lot more tax than they would under the current system – over £2,000 more.
Others buying more expensive properties will see a reduction in the amount of tax payable, or no increase in the tax they pay or a smaller increase than people buying more affordable properties. For example, someone buying a house for £260,000 will actually see a big reduction in the tax they pay and someone buying a property for £300,000 will see no change in the tax they pay.
That’s largely down to the current slab system of taxation which means that a) people just below an existing threshold pay less now than they would under the new system and b) people currently face a big leap in tax over a certain price which creates big savings under the new system.
But it does not change the fact that there will be winners and losers from this change and that some of the people worse off will not be the wealthiest among us but those buying typical family homes.
To be honest, I’m not sure that it is possible to create a new tax regime that does not make some buyers in the mid-market worse off. But moving from a flat rate of 7.5% to a range of rates between 5% and 15% would minimise the impact of the change, even if it made the system more complex.