The year 2020 has been, for most of us, the most unusual in a lifetime. Covid-19 – a new form of the coronavirus – has served to practically shut down entire countries and resulted in the tragic deaths of hundreds of thousands of people. In the UK, the lockdown measures announced in mid-March meant many areas of industry and commerce came to a standstill, and the government put in place packages to help people who could not work for the duration.
The housing market also came to a stop: with viewings not permitted under lockdown where only essential travel was permitted, people put their plans on hold, and mortgage companies also began to withdraw products. To help kick-start the market once lockdown measures began to be relaxed, the UK government announced a ‘Stamp Duty Holiday’. What does it mean, and how might it affect you? Below, we will explain stamp duty, why a holiday period was needed, and outline how you may be affected.
Stamp Duty Explained
What is Stamp Duty? It is a tax that is paid by people who purchase a property and is implemented in different areas in varied ways. In England, for example, buyers pay what is strictly called Stamp Duty Land Tax. In Scotland it is known as Land and Buildings Transaction Tax, and in Wales you will pay Land Transaction Tax. Don’t let this confuse you as all are a tax levied on the purchase of a property.
How much will you pay? This can vary considerably – due to locality and to the value of the home – but it is important that you understand the Stamp Duty Holiday applies only to buyers in England and Northern Ireland. What does the holiday entail, and – as it was implemented in July 2020 with immediate effect – how long does it last?
What is the Stamp Duty Holiday?
Stamp Duty is usually applied on all property purchases above a certain level. For the duration of the stamp duty holiday, this will stand at £500,000. If you purchase a property above that price, you will still have to pay stamp duty. If your purchase price is beneath half a million pounds there will be no stamp duty to pay.
Now things start to get a little complicated, as there is a sliding scale beyond £500,000 that applies. In a further change to the way the tax is calculated, buyers purchasing properties above the threshold will only pay tax on the amount above that level: if you buy a house costing £550,000, for example, you will be taxed on the £50,000 rather than the entire amount.
This could lead to considerable savings for buyers of more expensive properties, as well as those who are purchasing properties beneath the threshold who would previously have paid stamp duty.
For reference sake, prior to the holiday period homes costing more than £125,000 – with first-time buyers exempt up to a value of £300,000 – so the savings become apparent. How much will you pay? Let’s see if we can explain it in simplified form.
How Much Will I Pay?
It Is important we stress that the stamp duty holiday applies only if you are buying a property as a main residence. If it is a second home, you may be subject to higher fees. Assuming it is your main residence, here’s how it works:
For a property costing up to £925,000 you will pay 5% stamp duty on the £425,000 above the threshold. This rate applies to all amounts above £500,000 up to £975,000. If your home costs £600,000 – for example – you will pay 5% tax on £100,000.
Beyond £925,000 the tax rate rises to 10% for any amount up to £1.5million. So, for a £1.2million house – again as an example – you will be taxed 5% on £425,000 and 10% on the remaining £275,000.
Beyond £1.5million, any extra cost is taxed at 12%.
It may appear complicated, and for some it can be, but there are stamp duty rate calculators available online, and asking the estate agent will get you a clear answer as to how much duty you will need to pay.
For an example of how much can be saved under the new taxation rates, a home costing £700,000 would have been levied with a tax bill of £25,000 prior to the holiday period, whereas now that bill would be £10,000 – a considerable saving we’re sure you’ll agree!
How Long Does the Stamp Duty Holiday Last?
The stamp duty holiday period came into effect on 8th July 2020 and will run – as things stand – until March 31st, 2021. Anyone making a purchase between these dates will benefit from the lower taxation rates. It is advised that when the closing date is approaching, you keep an eye on the government announcements as the future regards covid-19 is far from certain.
In Scotland and Wales the stamp duty rates remain unchanged – if you are purchasing a home in either it is strongly advised you talk to the experts and make sure you understand what you will be liable to pay – and there are many laws relating to the property market that differ greatly between England and Scotland. Now that you know what you need to know, what is the purpose of the stamp duty holiday, and will it have the desired effect?
The Future of the Housing Market
Few events in history have exerted such a massive global change in the way live compared to the covid-19 pandemic. The fact that there is no clear end in sight to the crisis makes the property and financial markets unpredictable, and this will remain so for the foreseeable future.
House prices have – according to industry analysts – fallen each month since the crisis began, and the purpose of the stamp duty holiday is to get things moving once more. If you are looking at a move, it could be that now is the time to do it in order to take advantage of low prices and the stamp duty reduction.