On the 8th July, the chancellor Rishi Sunak announced a temporary break from stamp duty on the first £500,000 of all property sales in England and Northern Ireland.
The holiday will last until the end of March 2021 and it’s designed to boost the property market and help buyers struggling financially because of the coronavirus crisis.
What is stamp duty?
Stamp duty is a tax paid to the government by people buying properties.
Stamp duty is usually paid on all property purchases over £125,000 (or over £300,000 for first time buyers). The exact amount paid depends on the property. The percentage cost is tiered so that those buying expensive properties pay the most and those buying cheaper properties pay the least.
How much stamp duty would I previously pay?
Under the old rules a home mover would pay 0% on the first £125,000, 2% on anything over £125,000, 5% on anything over £675,000, 10% on anything over £575,000 and 12% on anything above £1.5m.
An exception to this is first time buyers. They would pay nothing on the first £300,000 of their property purchase. A first time buyer buying a home for £305,000 would only be taxed on £5,000. A first time buyer buying a home for £250,000 would have paid no stamp duty.
How does stamp duty vary across the UK?
In England and Northern Ireland buyers pay Stamp Duty Land Tax.
In Scotland it is Land and Buildings Transaction Tax.
Buyers in Wales pay Land Transaction Tax.
The new changes to stamp duty will only apply to buyers in England and Northern Ireland.
You can find specific numbers about how much tax is paid in Scotland and Wales at the bottom of this post.
Why have changes been made to stamp duty land tax?
According to Halifax, house prices have fallen for four months in a row. This is largely down to a lack of activity in the property market, with many people either unable to buy or choosing to postpone property purchases until their finances are healthier.
Changes to stamp duty could make the market more active and give potential buyers an incentive to go ahead with their purchase sooner rather than later.
The changes start immediately, meaning any properties purchased between now and the deadline will be eligible for the discount provided they meet the criteria.
How much money will I save?
The amount you’ll save will depend on the property’s value.
According to Rishi Sunak, the average stamp duty bill will fall by £4,500.
It’s estimated that nearly nine out of 10 people buying a main home this year will pay no stamp duty at all.
If you’re buying a property to live in as your main home, you won’t pay any stamp duty on it at all as long as the property costs £500,000 or less.
For those buying a property worth more than this, the amount of stamp duty they pay is tiered.
- Properties worth between £500,001 and £925,000 will be taxed at 5%
- Properties worth between £925,001 and £1.5 million will be taxed at 10%
- Properties worth more than £1.5 million will be taxed at 12%
Please remember that no matter how much the property’s worth, the first £500,000 is tax-free and therefore no tax will be paid on this amount at all.
There is a stamp duty calculator to work out how much you are liable to pay.
Will first time buyers benefit from the stamp duty changes?
In the Autumn 2017 budget, the government introduced a first time buyer discount meaning those purchasing their first home would no longer pay any stamp duty on purchases up to the value of £300,000.
Therefore, the new government changes implemented in July 2020 won’t make a difference to first time buyers purchasing a property worth less than £300,000, as they wouldn’t have paid money on it anyway.
The new changes introduced on the 8th July will mostly help first-time buyers in the south-east and London because they’re likely to struggle to find homes worth less than £300,000 and previously would have had to pay tax on anything over this sum.
Martin Lewis has argued that first time buyers buying a home with a small deposit will be unlikely to make the most of the scheme because they will struggle to access a mortgage at the moment. Many lenders have tightened their lending criteria as a result of the coronavirus crisis, making it harder for those putting down just a 5% or 10% deposit to get the loans they need.
I spoke to Tom, 26, who is hoping to buy a house worth £200,000 in the next few months. Because he’s buying a home worth less than £300,000, he would have been eligible for the government’s first time buyer discount and therefore wouldn’t have paid any stamp duty on his purchase anyway.
He says: “It’s a shame Rishi Sunak hasn’t introduced any measures to help people like me who are unable to buy more expensive homes but I know I should be grateful I don’t have to pay stamp duty anyway since I’m a first time buyer and my budget is less than £300,000.”
Will the stamp duty changes help people who are moving house?
Home movers will benefit from the changes providing they are purchasing a home worth more than £125,000. This is because they’re not eligible for the first time buyer’s stamp duty discount which sees newbie homeowners paying nothing on purchases less than £300,000.
The tax is paid after completion so if you’re in the process of buying a home, you can benefit from the changes.
I spoke to Isabel, 36, who’s set to save around £10,000 as a result of the changes. She’s in the process of selling the two-bedroom flat she owns with her husband and they’re buying a three bedroom house near Essex for roughly £400,000.
She said: “This is really exciting news for me and my husband because it means we’ll have an extra £10,000 to put towards home renovations. The house on the whole doesn’t need much work doing to it but we’re not too keen on the kitchen and would love to make some changes so it suits our style better. Before this, we couldn’t really justify the cost of doing it up straight away but now we might look to getting a new kitchen fitted before Christmas.”
What do the stamp duty changes mean for landlords?
Landlords and second home buyers (as in those who are buying a property in addition to the one they live in) are also eligible for the tax cut but will still have to pay the extra 3% of stamp duty they were charged under the previous rules.
Will the changes be backdated for those who have just completed a purchase?
Some people are calling for the changes to be backdated so that those who’ve gone ahead with a property purchase during the coronavirus crisis will receive a much needed cash refund.
At present, the government haven’t announced plans to backdate the stamp duty changes and I’m doubtful that they’ll have a change of heart. Although the changes have been framed as a way of helping home buyers, the main reason it’s been introduced is to encourage people who are reluctant to buy a home at the moment to get the ball rolling and go ahead with it.
For those sitting on the fence about whether or not to buy a home at a time of so much financial uncertainty, this could pressure them into taking the leap.
Backdating payments for purchases already completed would be of little benefit to the government, although it would be an honourable thing to do given the financial pressures so many are facing.
What if I live in Scotland or Wales?
In Scotland, the rates on Land and Buildings Transaction Tax are as follows:
- 2% on £145,001-£250,000
- 5% on £250,001-£325,000
- 10% on £325,001-£750,000
- 12% on any value above £750,000.
Scottish landlords pay an extra 4% Land and Buildings Transaction Tax on top of standard rates.
In Wales, the rates on Land Transaction Tax are as follows:
- 3.5% on £180,001-£250,000
- 5% on £250,001-£400,000
- 7.5% on £400,001-£750,000
- 10% on £750,001-£1.5m
- 12% on any value above £1.5m.
Welsh landlords pay an extra 3% Land Transaction Tax on top of standard rates.