The headline announcement in Chancellor George Osborne’s Autumn Statement 2014 was the populist reform of stamp duty land tax.

Purportedly 98% of those liable to pay the tax will be better off due to the change in the method of tax calculation and the new tax rates.

Stamp Duty Land Tax (SDLT)

SDLT is payable on residential property transactions and the buyer is liable to pay it. Immediately before the changes came into effect on 4 December 2014 the amount of tax payable was calculated by applying a fixed tax rate – determined by which tax band, or threshold, the purchase price fell in – to the entire purchase price. The old rates were:

* H.M. Revenue & Customs rounds down its figures when collecting SDLT

As the table shows, under the old system a property purchased for £250,000 attracted an SDLT liability of £2,500 (1% of £250,000). However, a property purchased for £250,001 would incur an SDLT liability of £7,500 (3% of £250,001). The pertinent issue was which threshold the purchase price fell within, as much as the price itself. Moreover SDLT could be prohibitive for buyers, particularly in areas with high property prices; e.g. London.

"Lies, damned lies, and statistics"

A recent ITV report (based on data from Rightmove) compared the increase in property prices across London boroughs. Without vouching for the accuracy of the report or any knowledge of the intention behind it, the figures are apposite in that as at 15 September 2014 the average house price in the ‘cheapest’ London borough (Barking and Dagenham) was apparently £251, 727; therefore under the old system SDLT would be charged at 3% of the purchase price and £7,551 would be payable.

The new regime

From 4 December 2014 the sudden jumps in SDLT (as the purchase price increased above the next threshold) have been removed. Not only have the SDLT % rates changed, but more importantly the method of calculation has been overhauled so that now SDLT is charged – akin to income tax – at different rates depending on the portion of the purchase price that falls within each tax band. This means that although some of the tax rates have increased, because the higher rate is applied only to that part of the purchase price which falls in the higher band (rather than to the entire purchase price) the overall SDLT liability will in most cases be lower under the new regime. The new rates and calculations are:

* The bands have been labelled for this illustrative calculation only, not by H.M. Revenue & Customs

As the table shows, under the new system a property purchased for £250,000 still attracts an SDLT liability of £2,500 (0% on the first £125,000 portion within Band A plus 2% on the second £125,000 portion in Band B). However, a property purchased for £250,001 now incurs an SDLT liability of £2,500 (0% on the £125,000 portion within Band A plus 2% on the £125,000 portion within Band B plus 5% on the £1 portion in Band C – on the basis that the Revenue rounds down when collecting SDLT). In this example the buyer would pay £5,000 less SDLT than under the old system.

H. M. Revenue & Customs has updated its online SDLT calculator to reflect the changes in the SDLT rates and method of calculation. The calculator includes an SDLT calculation under the old rules.

Practical implications

In most cases the SDLT liability will be lower under the new regime. The tipping point at which the old system provides more a favourable tax treatment is when the purchase price exceeds £937,500. The new regime will apply to residential property transactions completed on or after 4 December 2014 but where contracts have been exchanged before that date and the transaction completes on 4 December or later, the buyer (the tax-payer) can choose whether to pay SDLT under the old rules or under the new rules.