# George Osborne announces Stamp Duty overhaul, but are these changes beneficial?

Among the many reforms announced by George Osborne in his Autumn Statement include a complete overhaul of the Stamp Duty housing tax system, significantly reducing the tax payable on properties costing less than £937,000.

Under the previous system, Stamp Duty was payable as a percentage of the whole price of the property, set at the following increments:

Up to £125,000 = 0%
£125,001 – £250,000 = 1%
£250,001 – £500,000 = 3%
£500,001 – £1,000,000 = 4%
£1,000,001 – £2,000,000 = 5%
Over £2,000,000 = 7%

Now, buyers will only have to pay Stamp Duty on the chunk of their house price that falls into the relevant bracket. The brackets are now as follows:

Up to £125,000 = 0%
£125,001 – £250,000 = 2%
£250,001 – £925,000 = 5%
£925,001 – £1,500,000 = 10%
Over £1,500,000 = 12%

So whereas previously, on a house costing £300,000, a buyer would expect to pay £9,000 in Stamp Duty (3% of the entire property value), now a buyer would have to pay nothing on the first £125,000, 2% on the next £125,000 (£2,500), and 5% on the final £50,000 (£2,500). The total tax paid would therefore be £5,000, making a saving of £4,000.

On a house worth £500,000, you can expect to pay the exact same amount as under the last system, only via different calculations (3% of £500,000 vs. 2% of £125,000 + 5% of £250,000; both = £15,000)

The important thing here is that the new system manages to avoid the problem of ëcliff-edgingí between tax brackets that was associated with the previous system. Before, on a property costing £250,000, a buyer could expect to pay £2,500, whereas on a property costing just £50 more, the tax would be £7,501.50. Now, the tax paid on the two properties would be £2,500 and £2,502.50 respectively. The difference is staggering.

The upshot of this is that a new ësweet spotí is created, whereby houses priced between £240,000 and £280,000 are becoming significantly more desirable due to a combination of savings generally, and a lack of a stark difference between houses in difference price bands. The average house price at the moment, according to the Treasury, fits nicely within this sweet stop, at £275,000. Estate agents have already seen an increase in interest, with Haart reporting 15% more inquires last Thursday morning following the announcements.

Whereas before, estate agents reported around 30 times as many sales for houses priced between £245,000 and £250,000 as there were between £250,000 and £255,000, we can now expect to see a much broader spread, with buyers now able to widen their budget somewhat without having to account for a hefty tax bill on a property priced just over the limit.

While the removal of the cliff-edge between bands is certainly a good thing, as is the reduced tax payable on many properties, there are those who are worried that the new reforms will actually fuel competition among buyers, driving house prices up and thus negating the savings made in tax. Senior analyst Joe Starling believes that buyers ìcan still afford to pay the same amount as before and will offer to pay this. Indeed, the seller will also know that the buyer isnít going to pay such high tax rates and will ask for more moneyÖThe net effect is that the Treasury gets less money and the original seller will get moreî. He claims that the new reforms will exacerbate, rather than alleviate, the housing crisis.