Government set new stamp duty band for £2 million homes

The coalition government have confirmed that a new 7% stamp duty charge will be applied to homes that are sold for over £2 million.

Furthermore, any residential property worth over £2 million bought through a company will now also incur a 15% stamp duty charge. In addition, property bought by an overseas company and worth over £2 million will also be made subject to capital gains tax from April 2013.

Stamp duty is usually charged on the sale of a property worth more than £125,000. The charge begins at 1% of the purchase price, but increases to 3% for properties sold for over £250,000, 4% for properties over £500,000 and 5% when the property value reaches the £1 million mark.

The new stamp duty band is triggered when properties reach the value of £2 million.

The government have indicated that they want to make sure that people who buy the most expensive homes contribute more. Having recently scrapped the 50p tax rate for the top earners in the country the top level stamp duty rate has been expected as a replacement tax for the rich.

The new 15% stamp duty band is an attempt to clamp down on tax avoidance. In order to avoid the stamp duty charge, some people were setting up a limited company to purchase a property.

They then sold on shares in the company instead of the property itself and thus avoiding having to pay the charge.
The capital gains charge has been brought in to close another loophole in the law. This is intended stop people buying property through an offshore company and avoiding stamp duty. It is also a measure often used to avoid the 40% inheritance tax that is applied on the death of the homeowner.

The changes to stamp duty is expected to impact not only wealthiest properties in the country, but also have a disproportionate effect on property in London. The London property market has continued to perform well even in the current economic climate and prices in central London are now 11% higher than a year ago.

Property values have risen in London, despite property values in the most of the UK recording falls. London property has been seen as a good investment and many overseas investors have been buying property there.

Critics suggest the the new stamp duty charge will not necessarily deter people from purchasing property through an overseas company to avoid inheritance tax. At the same time, it could deter some foreign investors who may view the changes as a mansion tax.

Many properties worth close to £2 million are also likely to be devalued to below the new threshold.

The stamp duty holiday which was set up to help first time buyers get on the property ladder has also ended on the 24th March. Many had hoped that the deadline for this holiday would be extended to help mitigate the current difficulties of finding a minimum 10% deposit for a home that first time buyers need.