A brief history of stamp duty land tax
As a homeowner, you will almost certainly be aware of the existence of Stamp Duty Land Tax (SDLT), particularly if your property is above the £125,000 threshold. However, have you ever stopped to ask yourself exactly what SDLT is and why some are critical of the way it is implemented?
Our brief guide to the way SDLT has evolved over the last decade will tell you everything you need to know.
Introduction of stamp duty land tax and the finance act 2003
Stamp Duty Land Tax as we know it was first brought in by then-Chancellor Gordon Brown in 2003, as part of a new Finance Act that also looked at VAT, Capital Gains Tax, Corporation Tax and Income Tax.
Of course, Stamp Duty had existed long before then, going back as far as 1694, but this new system was the first time “land transactions” had been considered separately.
Mr Brown had already shown an interest in Stamp Duty on house purchases prior to the 2003 Act, introducing band thresholds at £250,000 and £500,000 soon after Labour’s 1997 election victory.
At this point, the lowest SDLT band was £60,000, meaning anyone purchasing a property over this amount was required to pay the tax. However, in 2005 this was raised to £120,000, increasing to £125,000 the following year.
All three of these bands introduced by Mr Brown remain in place today. The 5% SDLT threshold for properties over £1 million was introduced by George Osborne in 2010, and two years later he also brought in an additional 7% bracket for purchases over £2 million.
The problem with stamp duty land tax
Stamp Duty Land Tax has come under scrutiny many times since its introduction, with both Labour and Coalition governments implementing temporary tax band changes and breaks for first time buyers.
However, from the outside looking in, it is clear to most people what the biggest problems are with SDLT. As property prices continue to rise, the SDLT boundaries are arguably not reviewed frequently enough to take these increases into account. Consequently, more people than ever are finding themselves on the receiving end of higher stamp duty payments.
In addition, the way SDLT is structured is different from other taxes. For example, if your earnings go up and you enter a higher tax band, you will only pay this higher tax on any amount above your previous tax threshold, as opposed to your entire earnings.
On the other hand, with SDLT you pay the full amount on your whole purchase. This means that if you purchase a property for £250,000, you will pay just 1% of that amount in SDLT. However, if the buying price was just £1 higher, you must part with 3% of the total sum paid.
When you look at it that way, it seems obvious why buyers might wish to make use of the many legal methods available to reduce the amount of SDLT paid.
Ask Fiducia about reducing your stamp duty land tax
If you are buying a property and would like to find out more about our wealth management and tax planning services, call us today on 01625 955 200 to discuss your requirements.