We were delighted to see Scotland announce plans to reform the outdated slab structure of stamp duty last week.
The new rates will come into effect in April and unlike the English and Welsh system will only be payable on the amount of the purchase price above the stamp duty thresholds.
In England and Wales stamp duty kicks in at 1 per cent above £125,000 before rising to 3 per cent above £250,000 and 4 per cent above £500,000.
There is also a 5 per cent rate applicable to homes above £1m and 7 per cent above £2m.
The problem we see with our clients is that the rates apply on the whole cost of the property in a “slab” form.
It means a £1,000,001 home will have 5 per cent stamp duty or £50,000 whereas a £1,000,000 home will have 4 per cent stamp duty, or £40,000.
There is a cliff edge system which means sales bunch around certain price ranges below stamp duty thresholds.
The problem is most pronounced at £250,000 where most average homes are priced and where there is a big leap from 1 per cent to 3 per cent.
It means a home worth £250,001 would pay £7,500 in stamp duty whereas homes worth £250,000 would pay just £2,500.
The hated tax also has to be paid for upfront and in cash, adding a huge barrier to those who have already scrimped and saved for a deposit.
From next April, the Scottish Government will introduce a completely new system that puts much higher costs on expensive properties while dramatically cutting rates for lower priced properties.
In its annual Budget, the Scottish government said 5,000 additional house purchases will be taken out of tax.
Under the new system nobody will pay stamp duty on properties worth below £135,000, which is £10,000 more than the current threshold.
This means 45 per cent of homes in Scotland will pay no tax on property purchases.
Between £135,001 and £250,000 buyers will pay 2 per cent and between £250,001 and £1m the rate is 10 per cent. Over £1m the rate is 12 per cent.
The new system would see someone with a £300,000 property paying nothing on the first £135,000 then 2 per cent on £150,000 and 10 per cent on £50,000.
Instead of paying £9,000 under the old system, Scots will now pay £8,000 – a decent saving.
The Scottish government claims 90 per cent of homebuyers will either pay less or the same amount as they would under the current arrangements.
However, the new system is designed to be cost neutral so while we welcome the huge reductions for less expensive properties we are concerned about the huge levies charged on more expensive homes.
For a £1.5m property, buyers would pay £75,000 in tax under the old system but Scots will pay have to pay £138,000 under the new system. This will have a huge impact on sales of expensive homes.
For millions of Scots this reform is welcome and we hope the rest of the country is watching closely but it would be better to see stamp duty cut overall instead of just shifting the burden.
