House of Commons Library

Stamp duty land tax on residential property

Published Thursday, December 7, 2017

This Commons Library paper discusses the reforms to taxation of sales of residential property that have been made in recent years, before looking at earlier debates about the way house sales have been taxed.

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Stamp duties are levied on conveyances and transfers of land and property, and on securities (share and bond) transactions. The term comes from the fact that historically stamps on documents, following their presentation to the Stamp Office, indicated payment. Land and property transactions are now charged Stamp Duty Land Tax (SDLT), whereas electronic transfers in securities are charged Stamp Duty Reserve Tax (SDRT). In 2016/17 stamp duties raised £15.5 billion in total; SDLT accounted for just over three quarters of this total (£11.8 billion).[1]

Historically stamp duty land tax (SDLT) has been charged at a single rate on the whole purchase price of a property, with different rates for different value bands. When the sale price of a property exceeded the threshold for a higher rate of duty, tax would be charged on a ‘slab basis’, at the higher rate on the whole value of the sale rather than the part of the price above the threshold.  The tax has been charged at the same rate of tax irrespective of the number of residential properties owned by the buyer. Both of these aspects of the tax have been reformed in recent years.

First, in his Autumn Statement in December 2014 the then Chancellor George Osborne announced that in future SDLT would be charged on residential property on a ‘slice basis’: rates would only apply to the part of a property’s selling price that fell within each value band. New rates and thresholds would be introduced, with effect from 4 December 2014, to ensure that in removing these distortions, most buyers would not have to pay more tax. In addition, as Mr Osborne explained, “anyone who has exchanged contracts but not completed by midnight [on December 3] will be able to choose whether to pay under the old system or the new, so no one in the middle of moving house will lose out.”[2] It was estimated that this reform would cost £395m in 2014/15, rising to £760m in 2015/16.[3] To give effect to these changes the Government introduced primary legislation: the Stamp Duty Land Tax Act 2015.[4]

Second, in his Autumn Statement in December 2015 Mr Osborne announced that from   1 April 2016 new higher rates of SDLT would apply on the purchase of additional residential properties, such as second homes and buy-to-let properties. The Government launched a consultation exercise on how the new rates would apply. In the 2016 Budget the Chancellor announced certain modifications to the Government’s original plans, though the main principle underpinning the new duty regime would remain: the higher rates apply on a purchase if, at the end of the day, the buyer ends up with more than one property, but not if the property purchased is to replace one’s main residence, which is being sold.[5] The new higher rates were forecast to raise £675m in 2016/17, rising to £750m in 2017/18.[6]

Mr Osborne also announced that the structure of SDLT on commercial property would be reformed, so that the tax would be charged on a ‘slice basis’, in the same way as residential property. The Chancellor summarised the impact of the new duty regime as follows: “commercial stamp duty will have a zero rate band on purchases up to £150,000, a 2% rate on the next £100,000, and a 5% top rate above £250,000. There will also be a new 2% rate for those high-value leases with a net present value above £5 million … These reforms raise £500 million a year and while 9% will pay more, more than 90% will see their tax bills cut or stay the same.”[7]

Provision to give effect to both of these changes to the tax was included in the Finance Act 2016 (specifically s128 and s127 of the Act).

Finally, in the 2017 Autumn Budget on 22 November the Chancellor Philip Hammond announced that for first time buyers, the price at which a property became liable for SDLT would be set at £300,000. The relief would come in with immediate effect, but would not apply for purchases of properties worth over £500,000.[8] It is estimated that the new relief will cost £125m in 2017/18, rising to £560m in 2018/19.[9] Provision for the new relief is included in the Finance (No.2) Bill 2017.[10]

Guidance on SDLT is collated on Gov.uk. This includes an online calculator for those who wish to determine how much duty they are liable to pay, on transactions for both residential and commercial property.

This paper discusses these reforms to the taxation of residential property, before looking at earlier debates about the way house sales have been taxed. Two other Commons Briefing Papers look at the wider issues of housing need and housing supply.[11]

Notes:

[1]     HM Revenue & Customs, UK stamp duty statistics 2016/17, September 2017. HMRC collate statistics on stamp taxes on Gov.uk.

[2]     HC Deb 3 December 2014 c316. Further details were given in, HM Treasury, Stamp duty reforms on residential property, 3 December 2014.

[3]     Autumn Statement, Cm 8961, December 2014 pp52-4, p64 (Table 2.1 – item 4).

[4]     HC Deb 4 December 2014 c427, c476. See also, HMRC, Stamp Duty Land Tax: reform of structure, rates and thresholds, December 2014

[5]     HC Deb 16 March 2016 c961. Budget 2016, HC901, March 2016 pp38-9.

[6]     Budget 2016, HC 901, March 2016 p85, p87 (Table 2.1 – item 44; Table 2.2 – item ad). For guidance on the operation of the 3% higher rate see, HMRC, SDLT: higher rates for purchases of additional residential properties, November 2016.

[7]     HC Deb 16 March 2016 cc958-9. see Budget 2016, HC901, March 2016 paras 1.179-83; pp50-1 & SDLT: reform of charging provisions for non-residential property – tax information & impact note, March 2016.

[8]     HC Deb 22 November 2017 cc1059-60; Autumn Budget 2017, HC 57, November 2017 para 5.28

[9]     Autumn Budget 2017, HC 57, November 2017 p28 (Table 2.1 – item 5)

[10]    For guidance on the coverage of the new relief see, HMRC, Stamp Duty Land Tax: relief for first time buyers, 22 November 2017.

[11]    Tackling the under-supply of housing in England, CBP7671, 9 June 2017 & Stimulating housing supply: Government initiatives (England), CBP6416, 3 December 2017.

Commons Briefing papers SN07050

Authors: Antony Seely; Matthew Keep

Topics: Housing, Owner occupation, Private rented housing, Taxation

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