Stamp Duty Reform Huge Savings to New Homeowners

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Welcome to iCalculators monthly Self-assessment guide and news for November 2019. In this month's news we take a look at:

1. The Details of Stamp duty reform
2. Current stamp duty and rate brackets
3. Potential impacts of reform on new homeowners
4. Potential impacts of reform on the UK economy
5. Overall potential impact of the reform

Key points in our November 2019 self-assessment Update:

1. The possibilities of the reform coming into effect.
2. Percentage of stamp duty against the property value.
3. The reform could save new homeowners a lot of money.
4. The reform could give a boost to the property market.
5. Britain's government could lose on stamp duty revenue due to reform.
6. First-time homeowners are already taking advantage of stamp duty exemptions up to a certain property value.
7. Up to 90% decrease could be possible in SDTL, if reform comes into effect.

What the stamp duty reform could mean

There has been speculation in recent weeks after Prime Minister, Boris Johnson, suggested raising the stamp duty threshold. The plan is to raise stamp duty from its current lowest level of £125,000 to £500,000 and cut the highest rate of stamp duty from 12% to 7%. Stamp duty is the second most unpopular tax in the UK, after inheritance tax as these two taxes are applied against income which has already being taxed at source, thereby making this a double taxation of income.

A recent research shows that almost 29% of UK homeowners say that stamp duty is the number one factor that deters them from purchasing a new home. However, only 28% of them think Mr. Johnson would follow through on his promises and make the changes.

Who must pay stamp duty?

If you are buying a property or land in England and Northern Ireland, you must pay stamp duty on property valued more than £125,000. Buyers only pay stamp duty once their transaction has been completed, normally the solicitor acting on behalf of the buyer will make this payment on behalf of the buyer. The payments are remitted online to HMRC. The following tax table defines the current stamp duty rates:

Stamp Duty Tax Rates and Thresholds

Property/land purchase price	SDLT
£0 to £125,000	0%
£125,001 to £250,000	2%
£250,0001 to £925,000	5%
£925,001 to £1.5 million	10%
£1,500,001 and above	12%

First time buyers are exempt from stamp duty if the property is valued at £300,000 or less. You can calculate the amount of Stamp Duty due using the Stamp Duty Tax CalculatorIn Scotland a buyer pays the land and building transaction tax (LBTT) while in Wales they pay land transaction tax.

What would tax reform mean for new homeowners?

A report suggests that the levy would either be abolished or reduced under the reform. This would mean the charge of 4% of a property value above £500,000 and 5% above the value of £1 Million.

This could save a potential buyer circa £4,300 each and the changes would cut the average stamp duty by 63%. The reform could kick start the property market of the UK and see approximately 131,000 more house moves in the next one-year time, a welcome energization of the property market after the poor confidence seen as a result of poor market confidence triggered by the delays and confusion over Brexit. New research from Purple bricks suggests this kind of change would cut stamp duty paid by the movers from £6,800 to £2,500.

These proposals could encourage first time buyers to buy their first property as well as growing families move into bigger properties.

Potential impacts of reform on the Economy

Calculations suggest that the government would lose approximately £3.2 billion in stamp duty revenue. However, the rise in moving spend, VAT and other taxes could bring a potential revenue of £1.2 billion. Purplebricks CEO Vic Darvey has said: "Reforming stamp duty is the key to unlocking growth and getting Britain moving".

The research suggests a potential boost to the UK economy of £1.7 billion with the revenue generated. This revenue includes estate agency fees, property surveys, removal expenses, decorating & home furnishing, etc. Moreover, people are estimated to spend a £473 million on home improvements, this figure is based on average household expenditure on property when moving home.

Why things might be different

Since the increase in stamp duty in 2014, transactions have fallen by 8%. If the proposed changes materialize 15% of more properties would enter the market each year. Moreover, this will result in 90% of new home buyers free from the charges of stamp duty, a saving that supports average working families.

The relief for first-time buyers in 2014 increased SDLT receipts from £1 million plus and has remained strong, until the recent fall in the first half of 2019 after the leadership change and perhaps due to uncertainty around Brexit. This reform could be favorable to Britain's economy and its citizens and provide a positive financial boost at a point when people are very disillusioned with government and disenfranchised from the perceived political elite.