Stamp Duty holiday will save buyers thousands.

Buying a house can be a financial strain at the best of times, but, for some, the economic uncertainty of the coronavirus pandemic has made owning a new home seem like an impossibility.

But now, in a bid to help stimulate the housing market, Chancellor Rishi Sunak has announced a Stamp Duty holiday that could save prospective house buyers thousands of pounds.

The new financial measures could mean that nine out of ten house buyers in England and Northern Ireland will pay no Stamp Duty at all - with significant discounts for others.

COVID-19 and the housing market

As lockdown begins to ease around the world, concerns have turned to the economic legacy of coronavirus after five months of uncertainty.

It’s perhaps no surprise that the pandemic has affected house sales in the UK. The effects of lockdown and social distancing - combined with the financial strain and job losses - have meant that many people who were planning to buy a new home in 2020 have had to put their plans on hold. The Nationwide house price index reported that house prices fell by 1.7% in May – the biggest monthly drop for 11 years.

In a bid to try and bolster the housing market, the Chancellor in his summer statement announced a nine-month Stamp Duty holiday in England and Northern Ireland, saving prospective buyers up to £15,000.

Stamp Duty explained

When you buy a home, you must pay a tax. In England and Northern Ireland, this is called Stamp Duty Land Tax (SDLT), whilst Scotland and Wales have separate devolved systems. Buyers pay the tax to the government when a house sale is completed and the amount of tax paid is calculated as a percentage of the value of the property.

Before the Chancellor’s announcement, the amount of Stamp Duty paid depended on whether you were a first-time buyer or not:

Previously, first-time buyers were given a discount and so did not pay Stamp Duty unless the property cost more than £300,000

If the property cost between £300,000 and £500,000, then Stamp Duty was only payable on the amount above £300,000. If you already owned a property and were looking to move to a new one, Stamp Duty was payable on properties costing more than £125,000.

For example, if a property was sold for £200,000, a first-time buyer would pay no duty on the sale. If the same property was sold to a mover, the Stamp Duty before 8th July would be £1,500.

Now, though, the payment thresholds have been raised and the Chancellor’s new measures are set to extend Stamp Duty discounts to more buyers.

How long will buyers benefit from the discount?

The new Stamp Duty holiday will be in place from now until 31st March 2021. Buyers - whether first time or not - will pay no Stamp Duty on main home properties costing £500,000 or less – which could amount to some significant savings.

Before 8th July, a property which cost half a million pounds would have incurred £15,000 of Stamp Duty payable, but under the new measures, buyers will not pay any at all. Chancellor Sunak has suggested that 90% of people buying a main home this year will pay no Stamp Duty at all, with the average bill falling by £4,500.

Under the new temporary thresholds, properties in England and Northern Ireland priced over £500,000 will be taxed as follows:

• £500,000.01 - £925,000 – 5%
• £925,000.01 – £1.5 million – 10%
• Over £1.5 million – 12%

Meanwhile, Scotland and Wales have announced their own Stamp Duty holidays.

In Scotland, the Land and Buildings Transaction Tax threshold has been raised from £145,000 to £250,000 until 31st March 2021. In Wales, this duty is known as Land Transaction Tax. Previously, this amounted to 3.5% on properties from £180,000 up to £250,000, and 5% up to £400,000, but this has also been waived for properties up to the value of £250,000, again until 31st March.

Longer-term concerns

Stamp Duty contributes to around 2% of the Treasury’s total tax bill and under normal circumstances amounts to around £12bn in a typical year. Whilst these measures are hoped to stimulate the market in the short term, it is estimated that the nine-month Stamp Duty holiday could cost the Treasury an estimated £3.8bn.

Furthermore, some critics of the Chancellor’s plan have voiced concerns that this freeze on Stamp Duty will lead to fewer house purchases in the next financial year, as people who were planning to buy a house then bring their plans forward in order to take advantage of the tax break before it closes on 31st March 2021.

In a normal year, late summer would be a popular time for buying and selling property. It remains to be seen whether these Stamp Duty savings are enough to tempt buyers back to the housing market.