New Stamp Duty Guidelines
The chancellor has announced new stamp duty guidelines that form a stamp duty holiday on the first £500,000 value of all property sales in England and Northern Ireland. The new guidelines take immediate effect, giving a temporary increase on the tax threshold until March 2021.
The chancellor’s intentions are to boost the property market during the coronavirus pandemic. Raising the tax threshold will help buyers who are hit financially by the COVID-19 crisis. According to Halifax, the crisis has severely hit the UK’s property market, resulting in house prices falling for four months in a row.
Chancellor of the Exchequer, Rishi Sunak, says that nine out of ten people buying their main home will now pay no stamp duty.
What is Stamp Duty?
People and companies pay stamp duty when they purchase a residential property in the UK. The amount of tax varies slightly across the four countries of the UK and is calculated against the property’s price.
In England and Northern Ireland you pay Stamp Duty Land Tax (SDLT), in Wales, this is called Land Transaction Tax, and in Scotland, you pay Land and Buildings Transaction Tax. The temporary holiday announced by the chancellor only applies to buyers in England and Northern Ireland.
Stamp duty usually generates the government revenue of £12bn, which is equivalent to 2% of the total tax taken by the Treasury. The nine-month temporary holiday is predicted to cost the government approximately £3.8bn.
The new threshold of £500,000 applies to property sales that complete up until March 31st, 2021. The new guidelines apply to main residence completions that take place between July 8th, 2020, and March 31st 2021, inclusive. These rates apply whether you are buying your first home or have owned property before.
Properties costing more than £500,000 will pay only on the portion of the property value that goes over this cap. Homebuyers in England and Northern Ireland, buying properties valued at up to £500,000 or more, will save up to £15,000. The average fee for home buyers during this period of tax relief will fall to approximately £4,500.
Calculating your Stamp Duty
Your stamp duty is paid on the property completion date. This means that if you have already exchanged contracts, but the sale is yet to go through, you will qualify for the new rules.
The taxation brackets now look like this:
- £500,000 or less – nothing is due
- The next £425,000 (£500,001 to £925,000) – 5%
- The next £575,000 (£925,001 to £1.5 million) – 10%
- Above £1.5 million – 12%
You can use the government’s Stamp Duty Land Tax calculator to calculate how much stamp duty you will need to pay.
Companies and people purchasing properties up until March 2021 will make huge savings against the old threshold, which was set at £125,000. The previous limit for first-time buyers of £300,000, also moves in line with the new threshold of £500,000.
Second-home buyers and landlords are also given a tax cut. However, they still need to pay the extra 3% of stamp duty they usually incur under the previous stamp duty rules.
Critics of the new guidelines predict there will be a slump in the property market during April 2021. People will rush to take advantage of the temporary reduction in tax before the period ends.
You can read the government’s Stamp Duty Land Tax: temporary reduced rates announcement here.
Friends Capital Can Help
If you have any questions about the new guidelines and how best to take advantage of the temporary relief contact Friends Capital we’d love to help.