Summer budget statement – so what does the Stamp Duty Holiday entail?
Chancellor Rishi Sunak has announced a stamp duty ‘holiday’ in his Summer budget statement. The new tax ‘holiday’ started on July 8th and comes into immediate effect till March 31st 2021. The Chancellor hopes this announcement will kickstart the housing market and aims to entice people to move now rather than wait till next year.
During lockdown housing construction stopped, and sites are now many months behind. Along with the social distancing measures in place creating even more delays, the housing shortage is at an all-time high.
So, what is a stamp duty ‘holiday’? Here we outline the nuts and bolt of the Chancellors announcement.
What is stamp duty?
Stamp duty is a tax which is paid by those buying a property. The rules on stamp duty vary depending on where you are in the UK and the new ‘holiday’ will only apply to those buyers who live in England and Northern Ireland and pay the Stamp Duty Land Tax (SDLT).
Buyers in Scotland, pay a Land and Buildings Transaction Tax, and those in Wales pay a Land Transaction Tax. The Scottish or Welsh governments have yet to announce formal changes in the stamp duty levies.
The amount paid by those in England and Northern Ireland at present, depends on the price of the property being purchased and if you are a first-time buyer.
Who pays stamp duty?
Stamp duty is applied to anyone buying a residential property or piece of land. The tax applies to both freehold and leasehold properties – those buying outright or with a mortgage. (The stamp duty for new residential are charged differently)
How much is stamp duty?
Stamp duty has a number of bands – its calculated on the part of the property purchase price falling within each set band.
The stamp duty ‘holiday’ now means that until March 31st, anyone purchasing a property under £500,000, will pay zero stamp duty.
If the property price is more than £500,000, then the amount paid is based on the diagram below:
If you are buying a second home, the stamp duty rates in the table above are subject to an extra 3%. For example, you will pay 3% on properties below £500,000 and 8% on properties over £500,001 etc.
Here is an example of how stamp duty is calculated on a property with a value of £550,000:
0% up to £500,000 = £0 stamp duty to pay
5% on the remaining £50,000= £2,500 stamp duty to pay*
*The above is a saving of £15,000 prior to the new ‘holiday’ announcement.
When does this new rate start?
The announcement is effective immediately and will last till March 31st 2021. If the property purchase has been completed prior to the Chancellors announcement, the rates cannot be applied. If you have exchanged, but yet to complete, you should benefit from the new changes as stamp duty is calculated on the date of completion.
Are there any exemptions when paying stamp duty?
There are some exemptions where you do not have to pay SDLT, these include properties where:
- no payments change hands in return for a property or land transfer
- the property has been left to you in a will
- the property is transferred because of divorce or dissolution of a civil partnership
- you buy a freehold property for less than £40,000
To view the full list and read more about exemptions to SDLT visit HMRC
Will these changes help our economic recovery?
The Chancellor, Rishi Sunak, hopes this stamp duty ‘holiday’ will aid economic growth post pandemic, and many have welcomed this initiative. However there have been mixed reactions from industry experts on how this announcement may fuel demand short term, instead of looking long term and getting to root issue of the housing supply problem.
Will Scoular, head of private client lending at Investec says, ‘we must be cautious that the removal of the support in March could cause transaction volumes to stall again, creating somewhat of a delay in the impact of the crisis unless permanent reform is introduced’.
Is this ‘holiday’ just delaying a slump from now till next year?
Tax barrister Patrick Cannon is extremely hostile towards Rishi Sunak’s announcement and has compared it to a similar scheme that was introduced in 1992 from Norman Lamont, Chancellor of the Exchequer during John Majors time as prime minister. Mr Cannon believes the announcement in 1992 had adverse effects on the property industry for many years following and said the changes made by Rishi Sunak could result in vendors raising their asking prices, falling house prices and people falling into negative equity. Gary Bailey, MD of lender Hope Capital, feels the change is just a ‘band-aid’ stating, ‘cuts to stamp duty don’t change the fundamentals for many who struggle to save for a deposit’.
National Property Trade CEO Cormac Henderson, a recognised industry voice has expressed his concerns for the change in ‘Estate Agent Today’. In the published article, Cormac discusses his disappointment at a key fundamental flaw the stamp duty change fails to address. ‘While this help for the lower and mid ends of the market is welcome, what about last time buyers? It’s extremely disappointing not to see a much called for one-time stamp duty exemption for older downsizers who collectively hold the key to unlocking our housing market. This would stimulate the market at the top end, allowing people to move into fit-for-purpose accommodation while also freeing up family homes for those who need them most’.
Cormac continues to add, ‘It would also have been good to see an exception of the additional 3% stamp duty levy for registered Home Buying Services who provide much needed liquidity by unblocking broken chains and are an unintended consequence of this surcharge. By providing this service to developers and individuals we can bring much needed stock back into circulation, however the additional tax reduces the prices we can pay, ultimately having a negative impact on the market and consumers’.
So what now?
National Property Trade are here to guide you through the current market landscape and all the associated stamp duty changes. Our home buying service provides a guaranteed offer, giving the reassurance and certainty that is needed in this current economic climate. We complete your property sale at a time that suits your onward move, giving you the freedom to begin the next step of your property journey with simplicity and ease.