The Chancellor confirms the Stamp Duty holiday will be extended. On Wednesday 3 March 2021, Chancellor Rishi Sunak announced that the stamp duty holiday will be extended for a further three months until the end of June.

The extension will apply to all buyers and means that people in England and Northern Ireland will not have to pay stamp duty on the first £500,000 of property if they complete (legally transfer ownership) before 30 June 2021.

What is Stamp Duty?

Stamp Duty or, to give it its correct term, Stamp Duty Land Tax (SDLT for short) is a tax payable on all property transactions. It is usually the largest cost associated with a house purchase, often costing buyers more than the fees they pay to their solicitors, mortgage advisors and valuers combined.

Why has the stamp duty holiday been extended?

In the previous economic update on 8 July 2020, the chancellor announced a dramatic cut to stamp duty rates in a bid to galvanise the housing market as a result of the COVID-19 pandemic. He revealed his plans to raise the stamp duty threshold from £125,000 to £500,000 in England and Northern Ireland for movers, while the stamp duty threshold will be increased from £300,000 to £500,000 for first-time buyers. 

The recent tax break, combined with many people re-assessing their housing needs in the face of the pandemic, triggered a mini home buying boom. This spike in housing transactions led to a congested sales pipeline and the home buying process taking longer than usual to complete.

Rishi Sunak advised that the holiday extension move was "to smooth the transition back to normal - and we will only return to the usual level of £125,000 threshold from October 1".

The new extension of the Stamp Duty holiday will be welcomed by most looking to buy their home and means that 9 out of 10 people buying a property will not have to pay stamp duty. Saving them an average of £4,500 each and a maximum of £15,000 for those purchasing a home costing £500,000.

What happens when the stamp duty holiday ends?

When the stamp duty holiday ends on 30 June, there will be an interim period until 30 September when the tax-free threshold will fall from £500,000 to £250,000. This means that you will not have to pay stamp duty on the first £250,000 of your property.

 

What will Stamp Duty rates look like after the holiday?

	New rates (8 Jul – 30 June 2021)	Rates from 1 July – 30 Sept 2021	Standard rates from 1 Oct 2021
Up to £125,000	0%	0%	0%
£125,001 - £250,000	0%	0%	2%
£250,001 - £500,000	0%	5%	5%
£500,001 - £925,000	5%	5%	5%
Note: From 1 July 2021 the special rules and rates for first time buyers apply, including first time buyers purchasing property through a shared ownership scheme.

 

How does this affect different types of Shared Ownership purchases?

Shared Ownership is a part buy, part rent scheme that allows you to buy a share in the property (usually between 25% and 75%) and pay rent on the share you don’t own. It is designed as a stepping stone to completely owning your own home, allowing you to buy further shares in your property when you can afford to.

Resale purchase

SDLT is paid on the price of the share you buy. With the new changes, this means that you now pay zero duty if your share price is less than £500,000 (which will generally be the case).  This is therefore good news for many resale buyers and will remain good for many such buyers between July and September if their share price is below £250,000.

New Shared Ownership Purchases

If you are purchasing a new build property or if you are being granted a shared ownership lease of a previously rented property, the stamp duty changes are more significant.

When purchasing a new shared ownership lease, you can pay SDLT either on the full market value or on the share premium and the rent you are paying. If you pay on the full market value, you are exempt from paying SDLT on any future Staircasing transactions (staircasing is when you buy further shares in the property). However, if you pay SDLT only on the premium/rent, you may have to pay SDLT in the future when you staircase.

With the changed rules, there will be many more buyers for whom the full market value option is now affordable, or even free if the full value of the property is less than £500,000 and you complete before the end of June.

The big change therefore is not just that buyers will pay no SDLT, but that they will be able to benefit from an exemption on future Staircasing transactions. This is most relevant in the period to the end of June, making buying a new build shared ownership property before then an even more attractive proposition than it was before, but in some areas may continue to be a benefit through until the end of September.

Staircasing

The Stamp Duty holiday also affects how much SDLT is payable by shared owners who are Staircasing.

For interim Staircasing transactions (the purchase of any share up to 80%) no stamp duty is paid, nor on a final Staircasing (the purchase of any share more than 80%) if it was paid on the full market value basis when the lease was first granted.

However, if you are final Staircasing where SDLT was only paid on the share when the lease was first granted, you are liable to pay SDLT on the final share price.

Where SDLT is applicable, the calculation of the amount due on Staircasing transactions is very complex as it depends the price of the initial share, any intermediate shares and the final share and the proportion that each bear to the other.

However, the temporary ‘stamp duty holiday' means that many shared owners who staircase will end up paying less or no duty when some would have been paid before.

As such, now would be a really good time for anyone who can afford to do so to staircase, as the old rules will come back into play from 1st October 2021.

However, it is worth noting that due to the high volume of buyers and sellers in the UK right now, as well as the effects of the pandemic, there is a significant backlog in arranging mortgages and valuations and most local authorities are taking longer than usual to process searches, and therefore transactions are taking longer than usual to process.

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This article was contributed to by one of our panel professional legal firms - Direction Law.

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