Widespread approval from homeowners and buy to let landlords greeted the introduction of a stamp duty “holiday” when it was announced in the mini-budget or summer statement by Chancellor of the Exchequer Rishi Sunak on the 8th of July.
So, what does that stamp duty holiday amount to and what do you need to know about it?
What does a “holiday” mean?
The stamp duty holiday simply means that the tax will be temporarily suspended. The suspension takes immediate effect and will last until the 31st of March 2021.
Is stamp duty lifted from the purchase of all properties?
The tax holiday applies only to property with a purchase price of up to £500,000.
The rate of stamp duty applied on purchases of property costing more than £500,000 continues to attract the tax at the normal rate. That is to say, 5% on homes costing between £250,001 and £925,000, 10% on those costing more than £921,001 and up to £1,500,000, and 12% on any property costing £1,500,001 or more.
Why has a stamp duty holiday been introduced?
The introduction of a stamp duty holiday is intended to kickstart the housing market, aid its recovery from several months of lockdown, and inject new energy into a sluggish economy, explained Landlord Today in an article on the 9th of July.
How much do buyers stand to save?
In an article dated the 15th of July, Property Reporter cited estimates prepared by the Centre for Economics and Business Research (CEBR) suggesting that buyers might save an average of £4,400 on any property purchase – the exact savings, of course, depending on how much the home cost to buy.
As a result of the savings available, CEBR further calculated that an additional 101,000 property sales might be expected between now and the end of next March.
The article illustrated its calculations by showing how someone (not a first-time buyer) buying a property for £400,000 would normally be liable for stamp duty of £10,000. That figure is made up of the £2,500 that would usually be payable on the part of the purchase between £125,000 and £250,000 and a further £7,500 on the balance between £250,000 and £400,000. With a stamp duty holiday, therefore, the buyer makes a saving of the whole of that £10,000.
Since first-time buyers are in any case exempt from stamp duty on the first £300,000 of the price of their home, they would normally pay 5% on the balance between £300,000 and £400,000 – in other words, £5,000. Thanks to the stamp duty holiday, they now save £5,000.
To make things easier still, the Money Advice Service has published an online stamp duty calculator (incorporating the recent tax holiday).
Does the tax holiday also apply to buy to let property?
If you are a landlord purchasing a buy to let property or someone buying a second home, you enjoy the benefits of the current stamp duty holiday but must still pay the 3% stamp duty surcharge that applies to all such purchases.
Are the rules the same throughout the UK?
It is important to stress that the changes announced by the Chancellor on the 8th of July apply only to property transactions in England and Northern Ireland.
In Scotland and Wales – where property in any case tends to be cheaper – the threshold at which the local equivalents of stamp duty will be levied are raised from the current £145,000 to £250,000 until the 31st of March 2021, according to the Financial Reporter on the 15th of July.
