UK stamp duty rates 2013 - what do you need to know about them


The stamp duty land tax (SDLT) was introduced in the U.K. in 2003 through the Finance Act, as a transfer tax charged on land transactions. Since then, it has been a high revenue generator for the treasury. The slab system of fixing stamp duty rates has come under criticism time and again but now in 2013 as the housing market starts booming once again, the stamp duty rates are effectively choking the housing market.

The Basics of the Stamp Duty Land Tax

To understand how the U.K. stamp duty rates are affecting the housing market, let's first look at the basics of this system. The stamp duty land tax is levied on all land transactions including buying, leasing and renting. It is a self assessed tax and a buyer needs to file a return with the HM Revenue and Customs within four weeks of the transaction.

HM Revenue

HM Revenue and Customs provides a certificate on receiving the tax return without which the change in land ownership cannot be registered. The stamp duty rates are decided on the total purchase price of the property. The stamp duty rates are as shown in the table below: UK stamp duty rates 2013 - what do you need to know about them

Up to £125,000 - 0%

From £125,001 to £250,000 -1%

From £250,001 to £500,000 - 3%

From £500,001 to £1,000,000 - 4%

From £1,000,001 to £2,000,000 - 5%

Over £2,000,000 - 7% (bought by individual), 15% (bought by corporations)

Problems with the Slab System

The stamp duty, as evident from UK stamp duty rates 2013, land tax is levied in fixed slabs. This causes a distortion in the housing market. It means that for a property of £250,000 the tax applicable will be at the rate of 1% and will be equal to £2500. However for a property of just 1 pound more price the rate will increase to 3% and for £250,001 the applicable tax will be £7500. This system means that nobody is interested in purchasing a house that is just over one of the slab limits because of the excessive stamp duty rates. It makes it difficult for people to move to a bigger house when their family starts growing. It also means that it is harder to find a buyer for your house if the prices increase and your house crosses into a higher slab.

The Effects of the Stamp Duty on the Housing Market

In 2013 the housing market has started to boom once again as the prices of houses have started to increase. Usually this should be a cause for celebration as it points to a recovering economy but because of the stamp duty rates in the U.K. house owners aren't celebrating. Those looking to buy a house for the first time are also affected because of the stamp duty as it limits their options. As the house prices keep on increasing one in four buyers have now been dragged into the 3% bracket of the stamp duty. This effect is seen the most in London and South East England where 65% and 40% of the buyers respectively are in the 3% bracket.

The average cost of stamp duty has risen 10 times from £532 to £5,957 since 1995. This increase is disproportionately higher than the rate of inflation and at least 5 times higher than the rise in the house prices themselves. The major problem is the massive £5000 jump that house movers and first time buyers will need to make as the housing prices soar. It is already causing a stifling of the housing market as middle class families are forced to stay stuck in smaller houses. Elderly citizens living in bigger houses can't move out as there are no buyers for their costlier houses.

The Solution - UK stamp duty rates 2013 - what do you need to know about them

Many agencies have been trying to get Chancellor of the Exchequer to decrease the stamp duty rates for many years. Since the stamp duty land tax has been a big contributor to the treasury they are reluctant to decrease the rates. Studies have shown that if the rates of the stamp duty are slashed by half, the amount collected as tax won't decrease too much because of a proportionate increase in house buyers. Even if the rates cannot be slashed by half, a lot of respite can be given to home movers and buyers by removing the slab system and replacing it with a system similar to the income tax system. Scotland has already announced the removal of this system from 2015.

This change in the stamp duty rates is necessary to nurture the recovering economy of the U.K.