Luxury Properties and Recent Stamp Duty Reforms A New Charge on the Wealthy or an Escape from the Mansion Tax?
Luxury Properties and Recent Stamp Duty Reforms
A New Charge on the Wealthy or an Escape from the Mansion Tax?
We are in a new era in the property market, with the long overdue stamp duty reform being announced by Chancellor George Osborne in his Autumn Statement to the House of Commons. However, although stamp duty will be reduced for 98% of home buyers, it will jump substantially for those owning property worth £2 million or more, with buyers facing an increase of around £50,000.
So will the stamp duty reforms end the threat of Labour’s dreaded ‘mansion tax’? And how will they affect the property market at the higher end of the pricing spectrum?
A Guide to the Stamp Duty Reforms Announced
The Conservative Government’s stamp duty reductions are designed to help young professionals and families to get on the property ladder, which will in turn boost all sectors of the economy. George Osborne must have considerable faith in this plan as it is estimated the move will cost the government around £800 million in revenue per annum.
The basic premise of the new system is that house buyers will no longer pay stamp duty at a single rate on the entire property price. Instead, a banding system has been introduced, similar to the income tax model. The new stamp duty rates are listed below in full:
|Purchase Price of Property £||Stamp Duty Rates to be Paid Within Each Tax Band|
If you had already exchanged contracts on a property as at 4th December 2014 but have not yet completed, you will be given a choice as to whether you wish to pay stamp duty under the old or new rates.
The Effect on the Luxury End of the Property Market
All this is good news for first and second home buyers, who, due to rising house prices, especially in London and the South East, have faced huge jumps in stamp duty under the old ‘slab-rate system’. It will also help reinvigorate sales of houses priced on the ‘cliff-edge’ of the previous stamp duty thresholds which have historically proven difficult to move due to the significant increase in stamp duty owed, even if the property price was only £1 over the threshold.
But what affect will it have on homes valued at over £2 million, whose potential buyers are now facing harsh increases in stamp duty? Will it further slow an already cooling market, which is losing steam under the uncertainty of a mansion tax being introduced?
This year the Labour Party announced that if they are elected in 2015 they would introduce a so called ‘mansion tax’. Anyone who owns a property worth over £2 million would be liable to pay a tax of between £3,000 and £19,000 per year, raising an estimated £2.5 billion a year in revenue for the new government.
Following the announcement, even Angelina Jolie admitted that the proposed mansion tax could put her and her family off moving to London.
It is hoped that the stamp duty reforms which came into effect on 4th December 2014 will put an end to the uncertainty surrounding the mansion tax which is seen by many commentators as grossly unfair and likely to slow the luxury property market even further, or worse, bring it to a standstill.
Although the new stamp duty charges will increase the duty owed on the purchase of a high value property, unlike the mansion tax, it only has to be paid once. The result may be that high net worth individuals become more considered about purchasing a new property and only move home for a very good reason. However, it is unlikely to put people off purchasing luxury homes altogether which is the risk the Labour government runs with the introduction of a mansion tax.
It must be said that there would be nothing to stop an incoming Labour government simply adding a mansion tax on top of the existing new stamp duties for homes valued at over £2 million. Whether that happens will remain to be seen.
If you have any questions regarding the stamp duty reforms and how they will affect your property sale or purchase, then please call us on 020 3588 3500 to talk directly to one of our property specialists.
Have these reforms affected you? Be the first to comment below.
Leave a Reply