Ray Boulger on the Stamp Duty Reforms – and the Impact for Scotland

Written on 4 December 2014

The stamp duty land tax changes are well overdue and the timing is clearly overtly political. It is also is being sold as the Conservative alternative to Labour's Mansion Tax according to some political commentators.

The changes are on a sensible basis, but what was unknown was the thresholds and rates. These seem very reasonable, on the basis that most people (98% according to The Chancellor) will pay the same or less. 

The key thing is that making the tax fairer means there will no longer be no go areas for £125,000, £250,000, £500,000 and £1m, thresholds where hardly anyone transacts.

An important point is that anyone who has already exchanged can choose the old or new stamp duty land tax regime and so no one who has exchanged will lose out. Some people buying expensive properties will have rushed to exchange last night so I expect it was a late one for solicitors!

I think this will result in some people with property in these price areas who had previously held off selling because they knew they were unlikely to obtain the real value of the property now thinking about doing so. Likewise, buyers will probably be prepared to pay what they think the property is worth because the marginal additional stamp duty cost will now be small.

The likely consequence will be to increase activity in the property market, which will obviously be beneficial for the economy as a whole and generate extra associated tax revenue, from extra employment and from VAT, as most people spend several thousand pounds on VAT-able items when they move home.

As far as the mortgage market is concerned, at the margin a few borrowers might find they can bring their LTV below the next 5% threshold as they will have less cash to find upfront. But more generally increased activity in the property market is obviously good for mortgage brokers, although it might slightly reduce re-mortgage activity if more people are increasingly focussed on the likelihood of moving home.

Although in isolation this may be negative for the top end of the market, I think it reduces the argument for Labour's mansion tax. Most people thinking of buying a £2m plus property would probably rather pay an admittedly sizable one off additional amount of tax when they buy a property and can more easily budget for it rather than be stung for several thousand pounds every year indefinitely.

Another point worth noting is the likely impact on the value of property close to the Scottish border, which is particularly interesting because it will be the first time Scotland’s devolved powers result in a substantial difference in any tax north and south of the border. For very high value properties the new UK rates will reduce the differential that would otherwise have applied post 1/4/15.

However, for properties purchased at up to £937,500 the differential will increase post 1/4/15 and in some cases the Scottish tax will be more than double what is charged south of the border. For example at £500,000 a buyer in England will pay £15,000 (the same as before today), whereas the same property in Scotland will incur a tax charge of £32,300. 

This sort of differential (3.5% on a £500,000 property) is enough to impact on relative values. The net effect will be that, other things being equal, property values above £255,000 south of the border may outperform those north of the border after 1 April 2015 until a new equilibrium is found.

However, in the very short term, i.e. over the next 4 months, today's changes significantly increase the incentive for Scottish buyers above £255,000 to transact before 1 April 2015. Hence there is likely to be a short term boom in the price of Scottish properties, not just those in the Border area, worth more than £255,000.

Usually when property tax is increased it applies from the day after it is announced but now that many potential buyers in Scotland have 4 month’s notice of a massive tax increase they have a huge incentive to transact quickly. So expect Scottish property prices to be strong until March and fall back after that. It was perhaps rather naive of the Scottish Government to announce its new property tax rates so far in advance of implementation! 

The table below shows the amount of tax payable at the old rates and the new rates, plus the rates that will apply in Scotland from 1 April 2015.


UK – old rates

New rates in UK excluding Scotland

New rates in Scotland


















































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