STAMP DUTY Q&A
Stamp Duty Q&A
ON WEDNESDAY 8TH JULY THE CHANCELLOR ANNOUNCED CHANGES TO STAMP DUTY LAND TAX (SDLT) WHICH ARE EFFECTIVE UNTIL 31ST MARCH 2021.
What are the aims of the announcement?
It is hoped that it will help give the property market a well needed shot in the arm after transactions ground to a near-halt during the lockdown through
Some buyers have said they will spend the money saved on furnishings, which could help to boost other parts of the economy, or on buying a bigger property than they had expected to be able to afford.
What is stamp duty?
The Stamp Duty Land Tax applies to people who buy a property over a certain price in England and Northern Ireland.
The usual threshold means property costing more than £125,000 is liable for the tax, although stamp duty discounts have been available for first-time buyers.
Before the Chancellor's announcement home buyers did not pay any stamp duty on the first £125,000 of homes - the rate then goes up in stages – see table for amounts and applicable tax rates.
| Pre Chancellors Announcement Stamp Duty Rates | |||||
|---|---|---|---|---|---|
| Homeowner | 0-125k | 125-250k | 250-925k | 925-1500k | greater |
| FTB | 0-300k | 300-925k | 925-1500k | greater | |
| Only Home | 0% | 2% | 5% | 10% | 12% |
| Extra Property Supplement | 3% | 3% | 3% | 3% | 3% |
| Second Home | 3% | 5% | 8% | 13% | 15% |
| New - until 31st March 2021 | |||||
|---|---|---|---|---|---|
| Homeowner and FTB | 0-500k | 500-925k | 925-1500k | greater | |
| Only Home | 0% | 5% | 10% | 12% | |
| Extra Property Supplement | 3% | 3% | 3% | 3% | |
| Second Home | 3% | 8% | 13% | 15% | |
What changes has the Chancellor announced?
The Government has introduced a temporary increase to the "nil rate" band of stamp duty from £125,000 to £500,000, which applies until March 31 next year.
How is stamp duty calculated?
Stamp duty is calculated by applying increasing taxation rates to price bands, "slices" of a properties purchase price – shown above
Once all the bands have been taxed and added up this will equal the stamp duty on the purchase of a property
For example, stamp duty on a £750,000 house will fall from £27,500 to £12,500 - a saving of £15,000 (see example table below).
| Pre Announcement: Purchase Price £750k | ||
|---|---|---|
| Bands | Tax % | Tax £ |
| £0-£125k | £0 | |
| £125-£250k | 2% | £2,500 |
| £250-£925k | 5% | £25,000 |
| £925-£1500k | 10% | |
| greater | 12% | |
| Stamp Duty | £27,500 | |
| Post Announcement: Purchase Price £750k | ||
|---|---|---|
| Bands | Tax % | Tax £ |
| £0-£125k | £0 | |
| £0-£500k | 2% | £0 |
| £500-£925k | 5% | £12,500 |
| £925-£1500k | 10% | |
| greater | 12% | |
| Stamp Duty | £12,500 | |
| Savings | £15,000 | |
How will customers be impacted?
Homeowners: Prior to the Chancellor’s announcement, stamp duty was payable on homes priced above £125,000, this zero-taxation band has now been raised to £500,000
First time buyers (FTB): Prior to the Chancellor’s announcement, stamp duty was payable on homes priced above £125,000, this zero-taxation band has now been raised to £500,000
Landlords / multi property owners: Landlords and multi homeowners pay a three per cent stamp duty supplement for buy-to-let properties in England and Northern Ireland. This still applies but is now in addition to the raised zero threshold.
How much can you save with the stamp duty holiday?
The more expensive the property being purchased, the higher the stamp duty would have been – so the more you will save if you can buy it before 31 March 2021. The maximum amount a buyer could save would be if they bought a home worth £500,000 which is the threshold for the exemption. Stamp duty on this would have been £15,000.
What will this mean for buyers?
It means that in England and Northern Ireland nearly nine out of ten people getting on or moving up the property ladder will pay no stamp duty.
Some 87% of primary residence transactions will no longer involve stamp duty, and outside London and the South East the percentage rises to 93% (Based on statistics quoted by The Chancellor after his statement 8/7/20)
The measure will reduce the average stamp duty bill for a main home from £4,500 to zero, and buyers can save up to £15,000.
How does it affect 2nd home purchases?
There was some surprise that the measures extended to help those buying a second home or investment property. The additional homes 3% surcharge will still apply but investors stand to make savings as a result of the tax break.
The Chancellor announcement has confirmed that landlords will also benefit from the temporary stamp duty reforms, the 3 per cent stamp duty levy on the purchase of additional dwellings by landlords in England and Northern Ireland will change from covering the first £125,000 of a property to the first £500,000. Thereafter the rates will be 8 per cent on the next £425,000, 13 per cent on the next £575,000 and 15 per cent on the remainder. The measures will be in place until 31 March 2021.
Buy-to-letters should welcome the measure as they will still be able to reduce their SDLT bill by more than a third in most cases.
How will it benefit Landlords?
There is an expectation that the market will see increased volumes of FTB and Investors searching for a suitable purchase. Increased demand will certainly increase the possibility of a seller securing a purchaser who is motivated to move the transaction forward quickly to benefit from the Stamp Duty savings.
What if I have exchanged but not yet completed?
Stamp duty is calculated on the date of completion, so you should benefit from the new holiday exemption.
*After 31st March 2021 rates go back to pre announcement levels.