The full stamp duty holiday will end in June 2021 and will then be tapered until the end of September in order to smooth the transition back to the original rates
Extending the stamp duty holiday is expected to stop thousands of sales falling through
What are the current stamp duty rates?
The extended stamp duty holiday means that no tax will be levied on the first £500,000 of property purchases in England and Northern Ireland until June 30.
From 30 June until 30 September 2021, tapering will mean that you don’t have to pay any stamp duty on a residential property bought for up to £250,000.
Homebuyers whose moves have been slowed down by the latest lockdown could save significant amounts of money – up to £15,000. Here is a guide to buying your first home.
Experts, however, argue that the £12bn that stamp duty brings into the Treasury coffers each year is needed to pay for the huge coronavirus bill.
An extension will only mean more people will be caught out in six months’ time, says Sophie at 123estateAgent in Bromley. She notes that moving “the date does nothing more than move the problem further along the road”.
What is the stamp duty holiday?
The Chancellor introduced the stamp duty holiday in July 2020 as the country was coming out of its first coronavirus lockdown and run until September 30, 2021.
The aim was to give a boost to a housing market that had ground to a halt by offering a stamp duty break on the first £500,000 of the purchase price of a property in England or Northern Ireland.
Stamp duty is simply the money we pay to the taxman when we buy property or land in the UK worth over a certain value
The previous threshold for stamp duty land tax (SDLT) for residential properties in England and Northern Ireland was £125,000 (for first-time buyers it was £300,000). Anything above these amounts incurred tax ranging from 2% to 12%.
The tax break means that house buyers could save up to £15,000 when buying a new home
As a result, it has been credited as being a significant contributor to the big rise in house prices seen during 2020 and into 2021 as people rush to beat the stamp duty cut off date.
Is the stamp duty holiday likely to be extended?
Stamp duty rates are expected to return to normal from 1 October 2021, and the government has not yet made any moves to extend the holiday further.
The stamp duty holiday has already been extended once. It was originally scheduled to run from 8 July 2020 to 31 March 2021, in response to the housing market being put on hold at the start of the coronavirus pandemic.
The Treasury later extended the deadline to 30 June 2021, meaning no tax is levied on the first £500,000 of property purchases in England and Northern Ireland.
From 1 July 2021 to 30 September 2021 there will be a transitional period, when no tax will be applied to the first £250,000.
From October, the usual stamp duty rates will apply to residential property purchases, with the tax starting from £125,000.
Does the stamp duty holiday apply to second homes and buy-to-let?
Yes, the stamp duty holiday applies to the first £500,000 of the price of any residential property – so buy-to-let investors and those buying a second home can also benefit. However, they will still have to pay the stamp duty surcharge that applies to second homes.
Since April 2016, people buying their second (or third) home in England and Northern Ireland have had to shell out an extra 3% on each stamp duty band (in Wales and Scotland, it’s 4%). So instead of paying 0% on the first £500,000 thanks to the holiday, they pay 3% in England and Northern Ireland – but that’s still better than before.
What is the stamp duty after September 2021?
On October 1, 2021, stamp duty in England and Northern Ireland is set to return to previous levels.
Up to £125,000 – no stamp duty tax applied
The portion between £125,001 and £250,000 – 2%
The portion between £250,001 and £925,000 – 5%
The portion between £925,001 and £1.5m – 10%
Above £1.5 million – 12%
Note that first-time buyers already had a holiday where they did not have to pay any stamp duty on properties costing up to £300,000 (and 5% up to £500,000).
Where the purchase is for an additional property (such as a second home or buy-to-let), the normal rates will come back into force on October 1, plus the additional 3% rate:
Properties up to £125,000 – 3%
The portion between £125,001 and £250,000 – 5% (2% + 3%)
The portion between £250,001 and £925,000 – 8% (5% + 3%)
The portion between £925,001 and £1.5m – 13% (10% + 3%)
The remaining amount, above £1.5m – 15% (12% + 3%)
When do you pay stamp duty on a house?
Stamp duty needs to be paid 14 days after completion, i.e. when you have paid all the money and have the keys to your new home.
The SDLT return is normally filed by your solicitor, agent or conveyancer, if you have one, on the day of completion. Any costs will be added to their fees and they will also reclaim any relief you may be eligible for.
You can also file a return and pay the tax yourself.
Is it time to scrap stamp duty?
Stamp duty is a very unpopular tax and not just among homebuyers and sellers. Many economists and industry experts believe that it deters people from moving, punishing workers for moving around the country, older people from downsizing, and families from moving up the housing ladder.
There have been calls for the chancellor to scrap stamp duty altogether. Paul Johnson from the Institute for Fiscal Studies calls stamp duty the “worst designed and most damaging of all taxes”.
However, stamp duty brings in around £12bn a year for the government roughly equivalent to 2% of the tax the Treasury collects.
Find out more: Why we need to scrap stamp duty land tax — for good
What is the property levy – and could it replace council tax and stamp duty?
This proportional property tax would be levied on the current values of homes; council tax on the other hand is calculated on property valuations from 1991.
The consultancy WPI Economics is currently evaluating the impact of such a move. It’s initial analysis shows that the levy would be revenue-neutral – raising the same amount of money for the Treasury as council tax and stamp duty – if it were set at 0.48% of the value of a home.
That would mean someone owning a £150,000 house would pay £720 a year, or £60 a month. Out of bands from A to H, with H being the highest at valuations of more than £320,000, the average band D council tax in England for 2020-21 was £1,818. But a family in a £1m house would have to fork out £400 a month, or £4,800 a year. This is a controversial tax, with many Tory MPs fearful that it would have the biggest impact on their voters – with more expensive houses in the south hit the hardest.
What impact would the stamp duty holiday ending have on house prices?
While it is always difficult to predict the impact of any one measure on property market – as there are many moving parts – ending the stamp duty holiday could bring a fall in property prices, with a number of house sales falling through.
As things stand, September also marks the end of the furlough scheme and job losses could rise, which could also slow the market and cause prices to drop.
However, there is no clear consensus among industry experts as to what will happen to house prices in 2021.
Rightmove, believes that while we may witness a little slump once the stamp duty cut is removed, house prices will still rise by 4% over 2021.
As we have seen during the pandemic, the desire to move out of the cities could carry on as working patterns continue to shift, meaning that any price changes are likely to be sensitive to location.
All that said, the housing market proved particularly robust in 2020, with property prices reaching record highs towards the end of the year despite the pandemic. That has been in large part due to the stamp duty holiday but also to a post-Brexit deal bounce in the investment markets. Add in the hopes of a successful roll-out of vaccines, the perennial supply and demand issue, government help schemes and low mortgage rates, the housing market may weather the financial storm caused by the coronavirus.
According to the latest Nationwide house price index, the average UK house price rose almost 11 per cent to a new a record high of £242,832 in the year to May 2021.
How can I speed up my property transaction?
There are many steps to home buying. Here are some ways to speed up the process in order to complete in time to benefit from the stamp duty holiday:
Find an estate agent with a good track record. Get your instant valuation
Get a mortgage agreement in principle before you make an offer on a property.
Sellers should instruct a solicitor as soon as you list while buyers should instruct a solicitor as soon as your offer is accepted.
Get all your paperwork together eg sort your Energy Performance Certificate.
Consider homebuyer protection insurance which will cover you for some of your legal, survey and mortgage costs if your sale falls through.