Off-plan purchasers could be hit by the new 5 per cent stamp duty rate

In last week’s budget, the Chancellor announced a new 5 per cent stamp duty tax rate for house purchases worth more than £1m, which will take effect from 6 April 2011.

This change at first glance seems very straightforward. Those people who want to purchase a property worth an least £1m will have to pay 5 per cent stamp duty instead of the current 4 per cent, meaning that stamp duty tax bills for such purchases will increase by a minimum of £10,000. This rise will particularly hit purchasers in the south-east, where property is more expensive.

This change, though, is not as clear-cut for off-plan buyers. Off-plan buyers, as opposed to other purchasers, quite often buy a property a year in advance, meaning they could potentially fall into the 5 per cent tax bracket. For example, if a buyer agrees to purchase a new-build property valued at £1m, which has not yet been completed, they may be liable for the 5 per cent tax (instead of the current 4 per cent) if the sale is not completed before 6 April 2011.

At the time of writing, the Chancellor has not announced any new provisions which will protect off-plan buyers from such a scenario. However, in the past, provisions have been put in place to ensure that contracts entered into before a Budget were taxed at existing rates, so we will wait and see if the Chancellor will clarify the situation in the coming weeks.

There are potential ways of avoiding such a future liability, which I will be happy to discuss with any clients who find themselves faced with this position.