Budget 2010 - Stamp Duty Changes

Stamp duty holiday for first time buyers on properties up to £250,000 with immediate effect
'Mansion Tax' for homes over £1m from April 2011

During the budget, Chancellor Alastair Darling introduced changes to Stamp Duty in an attempt to boost the housing market, though clearly recognising that promoting home ownership can win votes, the centrepiece of Darling's statement was a two year stamp duty holiday for first-time buyers on properties up to £250,000 with immediate effect. This tax break for first time buyers equates to as much as £2,500; previously anyone buying a house for between £125,000 and £250,000 had to pay 1% in tax. In theory 9 out of 10 first time buyers will benefit since the Council of Mortgage Lenders estimated that last year, 92% of all first time buyers bought properties worth less than £250,000.

HMRC have made clear that they have strict rules about what constitutes a first-time buyer and who will benefit from the relief. A first time buyer must not have previously owned a freehold or leasehold interest in a residential property anywhere in the world. They must intend to occupy the property as their main residence. When purchasing a property jointly, both parties must fulfil the first time buyer criteria or no relief will be available. Additionally, if you have inherited a property, you will not be entitled to relief because the Government sees this as having a previous interest in a residential property.

Experts have warned that the system is open to fraud and that policing it is likely to prove a headache for authorities. Stamp duty is paid by a house buyer's solicitor on their behalf. The buyer has to sign the tax return, confirming all the details are correct. The new form will now contain a box asking whether the purchaser is entitled to stamp duty relief, but does not ask for any supporting evidence. Revenue says that if you have previously bought a property, your name will flash up on their system and even if it was not within the UK, they have access to a vast network of "tax information agreements" with other countries.

If you are found to have abused the system, in that you are not a genuine first time buyer, you will be charged the stamp duty and penalised with a fine of up to £5,000.

Housing experts said that the move to help first time buyers would boost the market, but warned that the main impediment for this group remained the need for a large deposit to obtain a mortgage.

This move is estimated to cost the Treasury £230m in 2010/11 and £290m in 2011/12 which will be offset by a new, higher rate of stamp duty of 5% for homes sold for more than £1m, or 'mansion tax' as it is being referred to. Previously the top band for stamp duty was the 4% on homes over £500,000. This new band will hit London and the South East the hardest. Zoopla estimates that homeowners in these two regions would pay 91% of the new tax. Despite confusion immediately after the Budget, the £1m threshold will not come into effect until April 2011 but will remain in force permanently, the Treasury says. Opinions regarding the effect of the new 5% rate were mixed. Most agree that there will be a rise in £1m sales before the deadline.