Over 100,000 property transactions could be saved by the Stamp Duty holiday extension, announced on 3 March 2021 as part of the Spring Budget and efforts to support the housing market during the Covid-19 pandemic.
Chancellor, Rishi Sunak, has listened to calls from the housing industry and extended the Stamp Duty Land Tax relief on purchases up to £500,000 to 30 June 2021. He has also announced a ‘tapered’ extension, allowing relief on homes up to £250,000 until the end of September 2021.
The holiday extension will only affect buyers in England and Northern Ireland. In Wales, there has also been a holiday on Land Transaction Tax, although this has only been for residential properties below £250,00. This is also being extended to 30 June 2021 but there is no tapered relief after that date and the rules in Wales will return to normal from 1st July 2021.. In Scotland the Land and Buildings Tax holiday is still due to end at the end of March 2021.
The extension was announced together with a new mortgage guarantee scheme, which should encourage mortgage lenders to start accepting buyers with deposits of just 5% of the property purchase price.
However, many are concerned that the extended holiday will cause house prices to carry on dramatically increasing – mere anticipation of the deadline extension caused average house prices to increase by 0.7% in February 2021. This could make it harder for buyers – especially first time buyers – to get on the housing ladder even with the mortgage guarantee scheme.
Why is the Stamp Duty holiday extension needed?
Typically, Stamp Duty falls due on property purchases over £125,000 (unless you are a first time buyer, in which case you get relief on purchases up to £300,000). This tax free allowance is called the ‘nil rate band’.
In July 2020, the government introduced a temporary Stamp Duty holiday and raised the nil rate band to £500,000 for all buyers. This means that a buyer can save up to £15,000 in tax when buying a home.
This holiday was intended to support the housing market during the coronavirus pandemic which caused great economic uncertainty. And it worked. Following the announcement, residential property transactions rose by 14.5% followed by a further rise of 15.6% in August.
The original deadline to complete a property transaction and reap the benefits of the holiday was 31 March 2021. From 1 April, the nil rate band was due to reduce immediately to £125,000. However, as the deadline approached, it became clear that many people would be unable to complete in time, putting around 100,000 transactions at risk of receiving a shock Stamp Duty bill.
Many criticised the ‘cliff edge’ of reverting the nil rate band back to £125,000 within a day. It meant that many buyers could become liable for Stamp Duty for reasons completely outside of their control, such as delays further down the property chain.
Critics therefore called for an extension with a tapered deadline to allow people who are already involved in property transactions to proceed without the risk of a significant tax bill if they miss the deadline.
How does the extended Stamp Duty holiday work?
On 3 March 2021, the Stamp Duty holiday deadline was extended to 30 June 2021. Anyone who completes their property purchase by the deadline will be eligible for 100% Stamp Duty relief on purchases up to £500,000.
Additionally, there will be a further deadline of 30 September 2021. Between 1 July and 30 September, the nil rate band will be £250,000.
From 1 October 2021, the nil rate band will revert immediately back to £125,000.
What will the effect of the Stamp Duty holiday extension be?
The extension to July 2021 alone could save around 300,000 property purchases in England, so will likely come as a relief to many buyers.
However, there is a risk that the extension could merely delay the ‘cliff edge’, although the cliff will not be as steep due to the tapered deadlines.
Therefore, it seems likely that the extension will reinvigorate the housing market and persuade many new buyers to start looking for their next home.
As a result, property prices may continue to rise quickly – great news for people selling, but not so great for low-deposit purchasers, particularly first time buyers.
Buying a home in 2021? Get expert conveyancing advice
We are experienced at guiding buyers through the complex process of buying a home and can progress your purchase as swiftly as possible, giving you the best possible chance of beating the Stamp Duty holiday deadline. As part of our service, we will handle Stamp Duty on your behalf, including filing the tax return with HMRC.
Get a conveyancing quote online to see how much your transaction is likely to cost, then a member of our conveyancing team will be in touch shortly.