In his Summer Economic Update, the Chancellor unveiled a temporary Stamp Duty Land Tax (SDLT) ‘holiday’ in a bid to boost the housing market and wider economy.
With the industry having effectively been shut down because of the Coronavirus pandemic, a reduction to the levy had been the subject of much speculation in the weeks leading up to his address and so the announcement was not such a surprise.
With immediate effect from the date of the update (8 July 2020), until 31 March 2021, the Stamp Duty residential nil-rate band in England and Northern Ireland will increase from £125,000 to £500,000.
As a result, SDLT will only be charged on the amount that you pay for the property above £500,000. The rates will apply as follows:
|Property or lease premium or transfer value
|SDLT rate||Higher SDLT rate||First time buyer|
|Up to £500,000||Zero||3%||Zero|
|The next £425,000 (the portion from £500,001 to £925,000)||5%||8%||5%|
|The next £575,000 (the portion from £925,001 to £1.5 million)||10%||13%||10%|
|The remaining amount (the portion above £1.5 million)||12%||15%||12%|
On a property costing £675,000 – you will pay 0% on the first £500,000, and 5% on the next £175,000. The total SDLT payable, based on the temporary rates, will be £8,750, where previously your total bill would have been £23,750.
Under the rules, landlords and second home buyers will also be eligible for the tax reduction but remain liable to pay the 3% stamp duty surcharge that they were charged under the previous rules.
You can calculate how much SDLT you will pay using the Governments online tool, here.
Partner Richard Dilley, commented on the Chancellor’s announcements: “Whilst it’s commendable that the Government are trying to boost the property market, a Stamp Duty Land Tax (SDLT) ‘holiday’ has the potential to create false peaks and troughs in the short-term.
“Individuals who were originally planning to buy next year could be prompted to fast-track their plans in order to take advantage of the tax cut, but what happens after 31 March 2021?
It is assumed that the SDLT break is actually saved by the purchaser, and not absorbed by the vendor by negotiating an inflated price, which will again only assist the economy temporarily.
“It’s a very real possibility that we could see the market crash in the weeks and months after, as a result of a slump in demand. It feels like the Chancellor’s address was perhaps a lost opportunity to address the long-term impacts of Coronavirus on UK property transactions, in that respect.
“There is so much he could have said that would have supported the property market long-term, such as incentivising landlords who take on tenants receiving benefits, providing cash flow to house-builders that provide affordable and/or sustainable energy homes so they can speed up construction, and giving lenders reassurance.
“However, whilst we have our doubts about whether this government initiative will stimulate the property market long-term, some lenders have begun to suggest that they will offer 90% mortgages as the Chancellor has “helped to restore confidence in the property sector”.
Considering the possibility of a market slump following the end of the tax break, Barry Jefferd, Tax partner, says: “We’ve seen the housing market thrown into disarray before, when major tax changes are made.
“Back in 1988 you could get tax relief on a mortgage; if you were married this was limited to £30,000 but if you lived together unmarried, you could benefit from twice that amount.
“The double relief was abolished on 31 July 1988 and between the March Budget announcement and that date, house prices shot up and so did the number of transactions that were taking place. After that date, the market crashed!”
Annually, SDLT nets the Government around £12bn, according to the latest figures released by HM Revenue & Customs (HMRC) and the nine-month holiday is expected to cost the Treasury an estimated £3.8bn.
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