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News - 6 February 2013

Stamp duty bills expected to rise.

The Land Registry's quarterly figures show an average house price of £249,958, with forecasts suggesting that the average price will top the £250,000 mark this year. This means that stamp duty land tax, payable when you buy, is levied at 1pc of the property price on anything sold for less than £250,000. However, once a property tops that price, the buyer must pay 3pc of the entire value of the home to the Government.

Unlike income tax, where the appropriate rate is paid only on money earned above the threshold, the 3pc stamp duty rate becomes payable on the entire purchase price of a property. This would push up the total tax bill from £2,500 to £7,500 a massive jump in costs for home movers.

Data produced for The Daily Telegraph by Legal & General shows that 23pc more properties are priced in the band just below the £250,000 threshold than in other market bands, and that the opposite occurs just above £250,000.

Tonmoy Kumar, Manager of the Accounts Department of ABDS comments:
“This situation could harm the recovery in the housing market, and thus the economy as a whole, because the price of homes will continue to bunch just below the £250,000 threshold.”

The £250,000 threshold for higher-rate stamp duty has been in force since July 1997. At that point, customers buying properties costing less than £60,000 paid no stamp duty, while those with properties costing between £60,000 and £250,000 paid 1pc of the purchase price. Anyone buying a property worth more than £250,000 paid 1.5pc stamp duty.

In 1997, however, £250,000 would buy you far more than an ordinary home. The average house price was £79,242 in 1997 according to Land Registry figures, compared with almost £250,000 now. Despite the rise in property prices since 1997, the threshold has not moved, although the percentage of purchase price payable in tax has doubled to 3pc.

Figures this week showed that the housing market was now at its healthiest since the financial crisis. Mortgage approvals for house purchases reached an 11-month peak in December, as lenders approved 55,785 new mortgages against 54,011 a month earlier, according to the Bank of England.

Analysts said the improvement signalled that mortgage lending was at its strongest in years, after one-off effects from previous efforts to support the housing market were stripped out.

The Government has also introduced a 7pc tax band for those with properties worth more than £2m, in an attempt to gain more tax revenue from stamp duty. The new band brings the tax bill on the purchase of a £2m property to £140,000.

However, The Community Infrastructure Levy (CIL), which is a new planning tax, will be rolled out across England and Wales in April. The rate of the CIL will be set by local authorities, and revenues can be used to fund infrastructure projects such as schools, hospitals and flood defences.

If you have any questions or concerns about Tax Planning and compliance, please contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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