There has been much excitement over the last few months about the prospect of some fundamental changes to Stamp Duty that could mean a substantial reduction in tax liability. It was during his run for Prime Minister that Boris Johnson first spoke about making Stamp Duty cuts for UK residents, aiming to reignite the lethargic property market.
Suspicions were confirmed earlier today when the Chancellor, Rishi Sunak, confirmed that the tax threshold has been temporarily raised until 31 March 2021 to boost the property market and help buyers struggling because of the coronavirus crisis.
The changes are effective immediately and will last until 31 March 2021.
WHAT IS STAMP DUTY?
Stamp Duty is a tax paid by people buying properties. In England and Northern Ireland buyers pay Stamp Duty Land Tax (SDLT) whereas in Scotland it is Land and Buildings Transaction Tax (LBTT) and in Wales it is Land Transaction Tax (LTT). The amount paid depends on where you are in the UK and the purchase price of the property.
WHAT HAS CHANGED?
The government has temporarily increased the Stamp Duty threshold from £125,000 to £500,000 for property purchases in England and Northern Ireland until 31 March 2021.
Previously, buyers of residential property paid Stamp Duty on increasing portions of the property price above £125,000 (although a discount was available if they were purchasing a first home and the purchase price was below £500,000):
- Up to £125,000 – 0% SDLT
- £125,001 to £250,000 – 2% SDLT
- £250,001 to £925,000 – 5% SDLT
- £925,001 to £1,500,000 – 10% SDLT
- Over £1,500,001 – 12% SDLT
From 8 July 2020 until 31 March 2021, anyone completing on a main residence costing up to £500,000 will not pay Stamp Duty and more expensive properties will only be taxed on their value above that amount.
If the property purchased is your main home, you won’t pay any Stamp Duty on it at all if it costs £500,000 or less. The next portion of the property’s price (£425,000 to £925,000) will be taxed at 5%, and the £575,000 after that (£925,001 to £1.5 million) will be taxed at 10%. The remaining amount (over £1.5 million) will be taxed at 12%
Landlords and second home buyers 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.
The reforms will not only benefit first-time buyers but will also held second-steppers and others who want to move but have been reluctant to do so because of the costs involved and further those that have taken a financial hit because of the coronavirus crisis. The average Stamp Duty bill will fall by £4,500 and Chancellor Rishi Sunak has suggested that with nearly nine out of ten people buying a main home this year, no Stamp Duty will be payable at all.
The holiday applies from 8 July 2020 which means anyone completing a property purchase before that date will have to pay the full, normal Stamp Duty. If you have previously exchanged contracts with completion taking place on or after 8 July 2021, you will be able to benefit from the changes.
WHAT ABOUT WALES
In Wales, the rates on Land Transaction Tax remain unchanged following the announcement made by the Chancellor and are as follows:
- Up to £180,000 – 0% LTT
- £180,001 to £250,000 – 3.5% LTT
- £250,001 to £400,000 – 5% LTT
- £400,001 to £750,000 – 7.5% LTT
- £750,001 to £1,500,000 – 10% LTT
- Over £1,500,001 – 12% LTT
Welsh landlords pay an extra 3% Land Transaction Tax on top of the standard rates.
It remains to be seen as to whether the Welsh Government will implement similar changes to the regime in Wales but will surely be facing increased pressure to do so!
