On Wednesday 8th July, Chancellor Rishi Sunak announced a dramatic cut to stamp duty rates in a bid to galvanise the housing market as a result of the COVID-19 pandemic.
Speaking in the economic update, the chancellor 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 news will likely be welcomed by most looking to buy their home with nearly nine out of 10 transactions estimated to no longer be subject to stamp duty.
Andrew Peglau, Assistant Director of Sales and Marketing at Peabody comments, “We’ve seen consistent demand for our homes throughout lockdown, so any extra help to reinvigorate the property market is welcome. As an entirely up-front cost, stamp duty is often a barrier for some buyers. The stamp duty holiday will help more people on to the property ladder, particularly first time buyers in London. It may also enable buyers to purchase a larger home or consider other locations to suit their needs.”
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.
How Does Stamp Duty Usually Work?
Homebuyers pay SDLT when they purchase a property over a certain price in England and Northern Ireland.
The rate of tax paid varies based on the value of the property purchased. First-time buyers in England and Northern Ireland were already exempt from SDLT on the first £300,000 of the property price and paid 5% on the excess to £500,000. If the property value was higher, then the normal tax rules applied.
Prior to the Stamp Duty holiday, the usual rates for SDLT are as follows:
- First £125,000 of purchase price - 0%
- Portion from £125,001 to £250,000 - 2%
- Portion from £250,001 to £925,000 - 5%
- Portion from £925,001 to £1,500,000 - 10%
What are the new Stamp Duty rates following the announcement?
The Chancellors announcement means that until the end of March 2021, people looking to buy a home will only start to pay stamp duty on property above £500,000. This will be for people buying their first home, or moving up or down the housing ladder. Take a closer look at the breakdown of stamp duty rates under the holiday period:
- Up to £500,000 - 0%
- The next £425,000 (the portion from £500,001 to £925,000) - 5%
- The next £575,000 (the portion from £925,001 to £1.5 million) - 10%
- The remaining amount (the portion above £1.5 million) - 12%
It is important to remember however, that to benefit from these reduced rates the purchase must complete before the 31 March 2021.
Representative examples
So let’s look at some relative examples to how the new stamp duty rate will impact home purchases:
- If you are purchasing a home for an agreed purchase price of £350,000, you will pay nothing in stamp duty tax. This is a saving of £7,500 from the previous stamp duty rate.
- If your agreed purchase price is £600,000, then you will pay 5% tax on £100,000 (the difference between £500,000 and £600,000). Under the new changes you will therefore pay £5,000 in stamp duty which represents a significant saving of £15,000.
- If your agreed purchase price is £1million, then you will pay 5% tax on £425,000 (£21,250) and 10% tax on £75,000 (£7,500). Under the new stamp duty rates, you will therefore pay £28,750 in stamp duty, which represents a saving of £15,000.
When is the Stamp Duty holiday effective from?
The new stamp duty rates will apply immediately from the 8th June 2020, until 31 March 2021.
Find out how much Stamp Duty you will save
The UK Government have updated their website with a new Stamp Duty calculator. Work out how much you need to pay in SDLT under the changes and find out how much you could save.
Use The Stamp Duty CalculatorDoes the Stamp Duty holiday apply if I own more than one home?
Higher rates will still apply for anyone looking to purchase an additional home beyond their main residence. The 3% higher rate for purchases of additional dwellings applies on top of revised standard rates as above for the period 8 July 2020 to 31 March 2021.
How does Stamp Duty work for Shared Ownership properties?
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.
Under Shared Ownership, if you purchase a home that has a full market value of £500,000 and you buy a 25% share for £125,000, then you would only need to pay stamp duty on the share value. Therefore under the new rules, as long as the share value you purchase is less than £500,000, you will pay zero stamp duty charge, brilliant news for first time buyers looking to get onto the property ladder.
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