Luxury Homebuyers Face Significant Stamp Duty Sales Tax Increase

Buyers of the U.K.’s most expensive homes face a jump in costs after Chancellor of the Exchequer George Osborne imposed changes to the stamp duty transaction tax.

Buyers of a 5 million-pound ($7.8-million) home will pay 513,750 pounds in stamp duty, almost 164,000 pounds more than previously under the current system, according to government data. The average house is valued at more than 6 million pounds in the London neighborhood of Mayfair and 4.6 million pounds in Knightsbridge, according to data compiled by Foxtons Group Plc.

U.K. homebuyers will pay 12 percent tax on every pound they spend above 1.5 million pounds when they purchase a home under Osborne’s reforms. Under the old stamp duty system they paid a flat rate of 7 percent on homes that cost 2 million pounds or more.

The changes, which go into effect at midnight, replace a tax organized in “slabs” in favor of gradual increases similar those used for income tax, Osborne said. Buyers will pay no tax on the first 125,000 pounds of a home’s price, then 2 percent on the portion up to 250,000 pounds and 5 percent up to 925,000 pounds. He predicted that 98 percent of homebuyers will pay less under the new system.

“There is a danger that this will slow down residential activity at the higher end of the housing market,” Gary Richards, a partner at law firm Berwin Leighton Paisner LLP, said by e-mail. “London’s status as a real estate capital could be jeopardized.”

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