Chancellor Announces Stamp Duty Holiday for Homebuyers

Chancellor of the Exchequer Rishi Sunak has announced a stamp duty holiday during which there will be no stamp duty on property purchases up to £500,000.

A stamp duty land tax is a tax paid by a purchaser a property or piece of land in England or Northern Ireland – Scotland and Wales have their own separate systems. After the property sale has been completed, the land tax is paid based on the total sum of the property. 

Before the financial statement was announced, there were two different instances in which stamp duty was payable, based on whether you were a first-time buyer or a mover.

For those who had moved, the stamp duty had to be paid on any property purchase over £125,000.

For first-time property buyers, paying stamp duty wasn’t necessary unless a property was purchased for more than £300,000. If your first property cost more than £500,000, the stamp duty was the same cost as a mover, but if it cost less than £500,000, buyers only paid land tax on the portion of the price that fell between £300,000 and £500,000.

During the stamp duty holiday, the starting rate will be escalated to £500,000 on all property sales occurring before 31 March 2021, The Guardian reported. The starting fee above £500,000 will be 5% and will apply to the portion of the property sale up to £925,000.

The change will be implemented for second homes and additional properties. A 3% surcharge will still be effective, but the stamp duty holiday will make purchasing property cheaper for landlords.

The reduction in land tax will make a difference for anyone buying a property over the former thresholds. For first-time homebuyers, those seeing the biggest difference will usually be those purchasing property in south-east and London, and anywhere else where prices are not typically above £300,000.

The stamp duty holiday could help people by allowing them to move more quickly than planned. With the savings on land tax, homebuyers can now use the money toward a deposit instead. The chancellor says the stamp duty holiday will help reinvigorate the housing market.

According to an estimation by the property firm Hamptons, approximately half a million households will not pay the tax, The Guardian reported. The report says 12% of sales are above £500,000; these will also include savings, but the largest cutback in percentage terms will be at the lower end.

A buyer relocating to an £800,0000 home will see their cost decrease by half, while a homebuyer paying £5 million will get a discount of less than 3%.

The land tax is paid after a sale of a property, so anyone who is already halfway through the process will benefit.

The savings can be great. At £250,000, a first-time homebuyer was already exempt from stamp duty, according to The Guardian, but those who are relocating to a new home would pay £2,500. Now, they owe nothing.

The Guardian says first-time buyers spending £495,000 on a home will not pay any tax now and could save £9,750; a mover who spends the same amount would save £14,750.

At £600,000, homebuyers will pay 5% on the portion above £500,000, so the bill will be £5,000 – £15,000 less than under the old rules, according to The Guardian. Investors who spend £250,000 on a property will save £2,500, while those who spend £495,000 will save £14,750.

The housing market was stalled during the COVID-19 lockdown, with buyers and sellers told to wait on purchases. But, as real estate agents have reopened, property websites and mortgage lenders have all claimed there have been spikes in interest from prospective buyers. 

The stamp duty holiday may not stimulate extra property purchases, but it may urge some people to move forward with homebuying efforts that have been in the works. Some may still be concerned with job losses, finances and the outlook of certain job industries. 

In the past, stamp duty holidays have focused on first-time buyers, but have not led to a sharp increase in sales.

Sunak stated that housing prices have fallen since the pandemic and has spoken about taking away uncertainty for people, according to This Is Money.

Buyers can save money on land tax and the money can be directed toward an offer or down payment, so this may lead to an increase in buyers in the market. Landlords and housing investors will get a tax cut, which may also lead to a surge in the housing market. 

Do you think the stamp duty holiday will persuade more people to purchase homes? Let us know your thoughts in the comment section below. 

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