The Pros and Cons of the Current Stamp Duty Holiday
For some there’s never been a better time to invest in property and benefit from the savings on offer during the current Stamp Duty holiday which was extended by the Chancellor, Rishi Sunak, in the recent Budget. However time is running out to complete a purchase before the current holiday ends.
With the UK seeing a home sales boom in March after extension of the stamp duty holiday, the UK housing market is showing no signs of slowing down. While the average homebuyer might feel they have been given a helping hand with a few thousand pounds saved in tax, the reality is that they may be worse off due to the increased levels of house price growth the scheme has caused in many areas of the country. With house prices expected to continue to climb, homebuyers may find themselves priced out of homeownership as a result and investors could end up paying a lot more than they should.
Stamp Duty Land Tax (SDLT)
Stamp Duty is a land tax that is applicable in England and Northern Ireland, and usually applies to residential property purchases over the value of £125,000 and non-residential land and properties over the value of £150,000.
In Scotland, the equivalent is Land and Buildings Transactions Tax. In Wales, buyers pay Land Transaction Tax.
The Stamp Duty holiday
The UK government introduced reduced rates for Stamp Duty Land Tax (SDLT) for residential properties back in July 2020, in response to the Covid-19 pandemic. Initially intended to last until 31 March 2021, there has now been a three month extension to the stamp duty holiday until 30 June 2021, meaning that, those who are in the process of buying, still have the chance to complete within the extended three month period. If you are a new buyer, it might be difficult to benefit from the scheme unless you are a cash buyer or the property is valued below £250,000, as delays in reaching completion due to increased workloads may occur. However the UK property market is moving at pace and anyone intent on making the most of current opportunities can still make savings before the end of September when stamp duty rates will return to pre Covid-19 levels.
The stamp duty holiday is open to all types of homebuyers, not just first-time buyers. However, different rules apply if you are purchasing an additional property. Second-home buyers as well as those purchasing buy-to-lets will also be eligible for the stamp duty holiday. However, they will have to pay the 3% surcharge that has always been in place for these kinds of properties. The Chancellor also announced that a 2% stamp duty surcharge on non-UK residents buying properties (announced in the last Budget) will take effect from 1st April 2021.
Currently – until 30 June 2021, Up to £500,000 - you will pay £0 (3% on second homes)
£500,001–£925,000 - you will pay 5% on anything above £500,000 (8% on second homes)
£925,001–£1.5million - you will pay 10% on anything above £500,000 (13% on second homes)
Over £1.5million - you will pay 12% on anything above £500,000 (15% on second homes)
From 1 July 2021 – until 30 September, stamp duty will still not be payable on properties under the value of £250,000.
From 1 October 2021 – the stamp duty will begin to apply for properties valued £125,000 and above, with pre Covid-19 stamp duty levels resuming.
Stamp duty is paid on completion. As long as completion occurs during the stamp duty holiday window, you won’t have to pay the tax. If you exchange on or before 30 June but complete after this date, then you’ll have missed the deadline and will not benefit from the relief.
The government sees stamp duty as an important source of revenue. Stamp duty land tax receipts in the United Kingdom amounted to approximately 11.6 billion British pounds in 2019/20, compared with 11.94 billion pounds in the previous year. During the provided time period, 2017/18 was the year with the highest amount of stamp duty tax receipts, at approximately 12.91 billion British pounds (D Clark,2020).
However, many individuals and organisations would like to see stamp duty abolished, or at the very least cut to zero permanently on lower-valued properties and reduced on higher valued properties, as it is seen as a barrier to people moving home. There are calls for it to be replaced with a fairer taxation system.
In a recent article for ‘MortgageStrategy’ Roger Baird reports, The National Residential Landlords Association (NRLA) which represents over 85,000 landlords, is calling on chancellor Rishi Sunak to scrap the three per cent stamp duty on the purchase of homes to rent where landlords invest in homes that add to the net supply of housing, stating this exemption should “include developing new housing, converting large properties into affordable units, changing the use of a property from commercial to residential or bringing one of the almost 650,000 empty homes in England back into use” NRLA chief executive Ben Beadle adds: “Research published last year suggests that landlords inject over £3.5bn into local businesses across the UK.”
For more useful advice and information
This useful Stamp Duty calculator on the Which? Website allows you can check what you are likely to pay when purchasing a property during the Stamp Duty holiday
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