The announcement by the chancellor at lunchtime on 3 December 2014 introducing changes to the stamp duty thresholds caused quite a stir in most property departments and estate agencies across England. A surreal panic set in since the reforms were to be implemented by midnight and they came without warning.
People joke about property lawyers enjoying the lack of changes in their field of business but this was certainly a time to put down our colouring pencils, use our stamp duty calculators and to contact as many of our clients as we could who were likely to be affected by the changes.
Stamp duty thresholds have previously been the point of many debates regarding the property market, prices and the lack of fairness in the application of this tax but nobody thought that these sweeping changes would be introduced on short notice with almost immediate effect.
The previous thresholds or “slabs” did tend to cause some distortion in negotiations between sellers and buyers for properties that were in the ball park of these thresholds as buyers were reluctant to pay additional increments above these thresholds given the significance that these additional payments would have upon the stamp duty payable.
The introduction of charges based at different rates for different portions of the purchase price that falls within each band rate does appear to smooth out some of unfairness associated with the previous stepped system. It is hoped that this should alleviate these clearly defined markers that previously caused distortions in the property market but they may introduce new markers for buyers at the higher end of the market.
The afternoon of 3 December 2014 saw a frenzy of activity in the property world. Clients, agents and solicitors spent much of the afternoon and evening on the telephone encouraging negotiations and eventually exchanging on a number of transactions. There were significant savings to be made for those at the higher end of the market and exchanges were worth undertaking where possible even if they were made without deposits and on the basis that clients gave their solicitors authority to sign the contracts on their behalves.
Issues that had been outstanding on transaction suddenly became less critical when the additional payments that were to be imposed after midnight were also considered!
Some sellers used it as an opportunity to increase the purchase price but many were just relieved to exchange knowing that if they didn’t the additional payments required after midnight on 4 December 2014 may make their deal turn south.
The effect of the changes for people who will be purchasing properties below the rate of £937,500 will be savings upon the stamp duty they will pay. For some, there has been no effect but they are in the minority. For a significant proportion of people in the London market, however, the effect of the introduction of the 10% and 12% thresholds has had some impact as the introduction of the 7% threshold did some months earlier.
Paul de Havilland of Robert Holmes & Co. comments that the introduction of stamp duty changes was of concern to many agents as buyers were already finding buying a home challenging due to the new mortgage market review rules introduced by the Financial Conduct Authority in April 2014. Surprisingly the local property market has been particularly active in January and February with many sales agreed although inevitably some buyers are trying to share the cost of the increased stamp duty with the seller as part of their negotiations. Ultimately buyers may just have to accept the changes and build the increased costs into their purchasing calculations much as they did when we saw the 7% stamp duty introduced for the property above £2m in 2011.