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Stamp Duty Holiday
Starting July 2020 and due to end on 31st March 2021, the government have given buyers a break on Stamp Duty for the purchase of a home up to the value of half a million pounds. This has resulted in a very healthy housing market, healthier in fact than it has been since 2013, which is no mean feat given the current lockdown restrictions.
What is Stamp Duty?
Stamp Duty, called “Stamp Duty Land Tax” in England and Northern Ireland, is a tax that must be paid by anyone purchasing a property, and is calculated according to the purchase price of the property. The particular Stamp Duty we are referring to only applies if this is a buyer’s main or only home, not for people purchasing a second home or landlords buying to let. Before the lockdown, Stamp Duty was liable for property with a purchase price from £125,000, which was increased to £300,000 for first-time buyers.
So what has changed?
Since last July, the government has given an incentive to home buyers to try to revive a flagging housing market, by giving them a “Stamp Duty Holiday”. What this means is that now, any (main) home that is purchased up to the value of £500,000 is completely tax free. So what has happened is that the threshold of Stamp Duty liability has increased. For homes that are priced over £500,000, the following Stamp Duty applies: From £500,001 to £925,000, this amount of the purchase price is taxed at 5%. Then from £925,001 to £1.5 million, the tax rate is 10%. For any amount over 1.5 million pounds, the Stamp Duty payable is 12%. This all means that, when purchasing a property worth at least half a million pounds, home buyers will save £15,000 in tax. The Stamp Duty Holiday has meant that the Treasury will lose an estimated £3.8 billion, as Stamp Duty amounts to about 2% of the total tax revenue. But the decision to do this was aimed at firstly to inject some life into the dreadful housing market which had seen property prices falling for 4 months straight, and also to save many jobs for those working in the property sector. And it has worked!
What, then, has been the result of the government’s decision on Stamp Duty relief?
Quite simply, the housing market is thriving! The substantial savings that home buyers can make have really encouraged people to bring forward their plans of moving home or buying for the first time, in a rush to beat the deadline, as from 31st March the Stamp Duty will be reverting back to its pre-lockdown rates. There was, as was to be expected, a seasonal slowing down of the market in December last year, but now it’s back on again in full swing. The Stamp Duty holiday has proven to be a real incentive for people to buy, at a time when they would otherwise have probably waited. There is of course a real concern that once March is over, the property market will slow right down again.
Is there a slight possibility that the Stamp Duty Holiday will be extended?
Not a chance! Although there is even a petition, signed by around 140,000 people, to have it extended, this is highly unlikely. The government have clearly stated that this tax break was put in place to help the housing market thrive despite lockdown, and that it would not be possible financially for this to continue beyond March.
Are landlords and second-home buyers exempt from the Stamp Duty Holiday?
No, the new rules still apply to them, although they still have to pay the additional 3% Stamp Duty they were paying before.