Chancellor, Rishi Sunak, has announced a holiday on Stamp Duty Land Tax. Between 8 July 2020 and 31 March 2021, home movers and first time buyers purchasing homes up to £500,000 will pay no tax.
Announced today as part of a package of legal and policy reforms intended to boost the economy and restart the housing market after the Covid-19 pandemic, the Stamp Duty holiday will save buyers thousands of pounds worth of tax.
House prices also appear to be dropping, although many suspect the market will bounce back relatively quickly. So, if you were putting off buying a house or flat due to the coronavirus, particularly if you are a first time buyer, now may be a good time to consider bringing your moving plans forward.
What is Stamp Duty?
Stamp Duty Land Tax (usually just referred to as Stamp Duty) is a tax you may have to pay when buying a property. It only affects properties in England and Northern Ireland. In Wales, you pay Land Transaction Tax and in Scotland, you pay Land and Buildings Transaction Tax.
The amount of Stamp Duty you pay depends on the value of the home you want to buy and whether you are a first time buyer.
Who pays Stamp Duty?
Stamp Duty is only paid by the buyer. So, if you also need to sell a property, you will not be double-charged.
Pre-holiday, you could be exempt from Stamp Duty if you were a first time buyer and the property was worth up to £300,000.
How much is Stamp Duty?
Stamp Duty can affect all residential properties worth more than £125,000. Before the Stamp Duty holiday was introduced, the standard rates were:
- £125,001-£250,000 – 2%
- £250,001-£925,000 – 5%
- £925,000-£1.5 million – 10%
- Over £1.5 million – 12%
First time buyers paid no tax up to £300,000 then 5% on any portion of the home worth between £300,000 and £500,000. For homes worth more than £500,000, there was no first time buyer relief.
Stamp Duty is different if you are buying a second home (such as a holiday home) or a commercial property. For example, people who purchase a second home or a buy-to-let must pay an additional 3% Stamp Duty on top of the standard rates. For more information, read our Guide to Stamp Duty.
How is Stamp Duty changing?
The Government has increased the lower Stamp Duty threshold to £500,000 for all buyers, including home movers who already own a home. This means that if you buy a home for £500,000 or less between 8 July 2020 and 31 March 2021, you will not have to pay any tax upfront. For people purchasing property worth more than £500,000, the standard rates set out above will still apply.
For example, if you buy a property worth £200,000, prior to 8 July 2020, you would have had to pay Stamp Duty of £1,500 (2% of the £75,000 over £125,000). Because of the holiday, you do not have to pay anything. If you are interested in finding out how much you could save, use our conveyancing calculator.
People purchasing a second home or buy-to-let can also receive a tax break. The higher rates will still apply, but for properties worth up to £500,000 the rate will only be 3%.
How long will the Stamp Duty holiday last?
The Stamp Duty holiday will be temporary, lasting from 8 July 2020 until 31 March 2021.
Why is Stamp Duty changing?
After three full months of lockdown due to the Covid-19 pandemic, the Government is introducing a range of measures designed to mitigate damage to the economy.
This includes restarting the housing market which ground to a halt in March due to restrictions on viewings and moving home. The Stamp Duty holiday is intended to encourage people to buy when they may otherwise have put off buying until next year at the earliest. Today’s changes will hopefully help the market get back on its feet sooner.
Should you buy now?
If you were looking to move home prior to the Covid-19 lockdown but put your search on hold, should you jump at the chance of the Stamp Duty holiday?
It depends on a number of factors. This will be a once in a lifetime opportunity for many buyers – house prices are dropping for the first time in years and the Stamp Duty holiday could save you thousands in upfront costs. However, if you are a first time buyer in England, it is important to remember that you are ordinarily exempt from Stamp Duty on homes up to £300,000 anyway.
Additionally, you should remember that because of the uncertainty in the housing market, you are unlikely to see any short-term financial returns on your purchase. Therefore, you should go into the buying process with the intention of living in your new home for at least a few years.
If you also have a home to sell, it is also important to consider Covid-19’s effect on the value of your current home. Although the Stamp Duty savings alone may make moving home now worth it.
Finally, it is always important to seek advice from skilled professionals when entering into a property transaction. Stamp Duty has become increasingly complex over the years so make sure you seek independent advice from a qualified tax specialist or financial advisor.
Do you need advice about buying a house or flat?
If you are planning your next move, whether you a first time buyer, home mover, buy to let landlord or looking to invest in a second home or holiday home, we are here to help. Our specialist team of residential conveyancing solicitors can handle all legal aspects of your purchase and/or sale, including carrying out property checks, handling Stamp Duty and filing the tax return with HMRC.