The effect of the coronavirus pandemic on the UK housing market has been notable. With many families falling on hard times planned moves have been postponed. In the latter part of 2020, there was a notable uplift in the market, with mortgage providers putting previously withdrawn products back on the shelves. A further boost came in the shape of a stamp duty holiday announced by the UK government.
Originally planned to stay in place until the end of March 2021 the Chancellor Rishi Sunak recently announced and extension to protect against the possibility of sales falling through thanks to overlapping with the deadline. In the following article we explain what stamp duty is, what the stamp duty holiday entails, and what it means if you are considering buying a property right now.
What is Stamp Duty?
Stamp duty is a tax levied on a property purchase. It also applied – and in some cases still applies – to legal documents. Stamp duty is so named as a physical stamp or seal was once required to be applied to the document for it to be legally binding.
In the UK stamp duty is usually levied at different rates according to the value of the transaction. The duty is calculated by taking a percentage of the value from the overall sale and applying that rate.
Stamp duty is believed to have its origins in Italy in the early 1600’s, and was first levied in the UK in the latter part of that century. It is just one of many property taxes that have applied in the UK and across the rest of the world. Let’s have a look at the stamp duty holiday and what it means for buyers.
What is the Stamp Duty Holiday?
In his 2020 spring budget chancellor Rishi Sunak announced a stamp duty holiday designed to help people buying properties in a time of crisis. The covid-19 pandemic was in its infancy at that time, yet a worsening of the situation was clearly evident. The property market was hit by the enforced furlough of many people across commerce and industry, and also by lenders withdrawing mortgage products in fear of the upcoming crisis.
The stamp duty holiday was introduced as a way of encouraging people to give the market a boost. The latter part of 2020 saw a surge in mortgage applications as buyers took advantage of the reduced costs. The scheme was originally scheduled to end at the close of March 2021, but the chancellor took the opportunity to extend the holiday in England and Northern Ireland until the end of June. In Scotland, the deadline remains 30th of March.
The extension has been implemented largely due to the numbers of people choosing to move. It has been noted that with such high demand mortgages and sales are taking longer to process. There is a genuine concern that people who have agreed a purchase in the past few months may not be able to complete before the original deadline and would find themselves paying stamp duty they had not budgeted for. Following, we look at how the holiday will affect those who are currently going through the home buying process.
Why Should I Buy Now?
Stamp duty is normally applied to property transactions in excess of £125,000. Up to that level there is no stamp duty applicable. Beyond the threshold a sliding scale of rates determines the amount to be paid.
The stamp duty holiday raised the threshold to £500,000. The average price of a house in the UK is around £250,000 hence most purchases will be within the £500,000 threshold. To take advantage of this – which could save a buyer many thousands of pounds – the transaction must be completed by the 30th of June 2021.
Following that date, the stamp duty threshold will be lowered to £250,000 until the 1st of October 2021 when it will revert to the original £125,000. Buyers completing before the end of June therefore have an opportunity to buy a house for less than £500,000 and save considerable amounts of stamp duty in the process.
These savings explain why the market has experienced a lift. It has come as a surprise to some buyers that there is great competition for homes not only beneath the threshold but above it, as the rates of duty on the sliding scale have also been reduced. Another factor influencing the market is that of families necessarily having to spend more time in their homes than usual.
This has led to people deciding they need either more space, or somewhere out of the built-up areas they are in with greater access to a garden or outdoor space. The housing market plays a great part in the UK economy, which needs support right now. Buying a property now is a sensible decision if you had planned to do so in, for example, the next couple of years as there is plenty to take advantage of.
The title of this article asks what the stamp duty holiday means for buyers. We’ve outlined the main benefits above, so let us show you a couple of examples that should help understand.
If you are to buy a property costing the national average – £250,000 – right now and complete before the 30th of June, you would pay zero stamp duty. This applies up to the 1st of October, after which the tax levied would amount to £2500.
Should buy a property costing £500,000 and complete before the 30th of June you will pay zero stamp duty. Completion after that date and before the threshold returns to the £125,000 level on 1st October would see a stamp duty charge of £12,500. Once returned to the standard level that would become £15,000.
From that we have written above, and the examples given it is clear that buyers have good reason to buy and complete by the end of June as there is the potential to save a great deal whilst stamp duty remains at the current levels.