June 20, 2014 7:03 pm

Chart that tells a story . . . stamp duty land tax

What does this show?

The amount of stamp duty land tax (SDLT) collected by HM Revenue & Customs each month over the past six years.

Having fallen steeply at the height of the financial crisis, this tax on property acquisitions now generates an increasing amount for the government.

In the year to the end of April 2014, £9.5bn was raised – up from £7.1bn in the previous 12 months.


Who pays stamp duty land tax?

SDLT is charged as a percentage of the total payment given for property or land when it is bought.

For residential dwellings, SDLT is payable on a sliding scale, with the rate of tax rising with the value of the transaction.

This ranges from 1 per cent for properties up to £250,000, to 7 per cent for properties purchased for more than £2m.

Rates of 3 per cent, 4 per cent and 5 per cent are payable respectively on properties exceeding £250,000, £500,000 or £1m. No SDLT is payable on purchases up to £125,000.

SDLT is charged at 15 per cent on residential properties costing more than £500,000 bought by companies or collective investment schemes. This rate is reduced to 7 per cent where the property is used for rental or development.

There are some exemptions where SDLT is not payable, most notably including property left in a will and transfers in a divorce.


Are property sales on the rise then?

Yes. There has been an increase in the number of residential sales since their 2008 trough, accelerating in the past 12 months.

According to data from the Office for National Statistics, the number of transactions across the UK in the 2013-14 financial year stood at 1.13m, up 22 per cent on the previous year. Sales increased only slowly in the previous two years.

The number of property transactions only tells part of the story, however.


What other factors are at work?

A key driver of rising SDLT revenues is rising house prices, particularly in London and the southeast where property values are higher.

Across the UK, house prices rose on average by 8.7 per cent to £184,464 in the year to May, according to the Halifax house price index. There is great regional disparity in both prices and house price inflation, however.

In Northern Ireland and Scotland, where average house prices are £108,695 and £115,929 respectively, most house sales will not incur SDLT.

In London and the southeast, where average house prices are £319,894 and £248,178 respectively, very few transactions will fall below the £125,000 SDLT threshold. Average house prices in Greater London have increased by 15.5 per cent over the past year, according to the Halifax.

As prices rise, more transactions – particularly in London and the home counties – qualify for higher rates of SDLT, in what may be seen as “bracket creep”.


What is ‘bracket creep’?

This is where progressive forms of taxation increase as taxpayers move into higher tax brackets as a result of inflation, although the tax thresholds themselves remain constant. In this sense, bracket creep has the effect of an invisible tax rise.

According to HMRC data, 52 per cent of residential SDLT revenue came from property transactions over £500k in 2012-13, compared to 36 per cent in 2006-07.

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