Stamp Duty Holiday: Everything You Need to Know
The last few months has seen a lot of property talk focused on the stamp duty holiday, so here is a quick round up of everything you need to know.
Firstly, what is stamp duty?
Stamp Duty is a factor that needs to be considered when buying property, especially if it is a second or third property you are buying. It refers to the amount of tax you have to pay up front when making a purchase, if the property is over the value of £125k. If you are a first time buyer, you get to skip the stamp duty fee providing the property is less than £300,001. If you are not a first time buyer and are looking at moving or buying another investment property, you are expected to pay this up front, which can bump up the cost of moving.
What are the home mover stamp duty rates?
0 - £125,000: 0%
£125,001 - £250,000: 2%
£250,001 - £925,000: 5%
£925,001 - 1,500,000: 10%
1,500,001 + 12%
So, if your property costs more than £125,000 you are taxed based on the value of the property and this needs to be paid up front on top of your deposit.
What about the stamp duty holiday?
As you may be aware, the government introduced a stamp duty holiday in June 2020 in a bid to boost the property market after the pandemic. It was also put in place to support anyone who may have taken a financial hit due to the pandemic. The holiday meant that those moving house didn't have to pay stamp duty on any property under the value of £500,001. However, if you were buying a second property, you'd still be expected to pay a 3% charge.
Initially running until 31st March 2021, Chancellor of the Exchequer, Rishi Sunak, has announced that it will be extended until the end of June. Thereafter it will be tapered to properties of up to £250k until September. Simply put, if you are in the process of buying a house and it doesn't go through by the end of June, you will still benefit from the stamp duty holiday providing the property is no more than £250k.
How has this impacted lawyers and conveyancers?
Whilst the stamp duty holiday was a huge hit with those in the property market, it has added an extra strain on lawyers and conveyancers who have been under pressure to get everything completed before the end of the holiday. Although this has now been extended, some are saying they would have preferred for the government to just taper it.
This would mean the holiday would end as expected for anyone new at the end of March, but any buyers in the process would have a little longer to complete on their purchase and still benefit from the holiday.
Why is the Stamp Duty Holiday ending?
Many are calling for the government to get rid of stamp duty in its entirety, rather than it coming back in July. After all, we are already taxed on what we earn, so why should we be taxed on what we choose to spend our money on?
The answer is simple: it would be too expensive for the government to do this. The government's total gain from stamp duty is around £12bn annually, which is roughly the equivalent to 2% of the treasury's total tax take.
Currently, we are nine months into the holiday and it will cost the treasury around £3.8bn.
What is the property market currently like?
Despite many thinking the property market would have taken a huge hit due to the pandemic, UK house prices have bounced back. In fact, the average house price has risen by 0.7% to around £231k in February, compared to the drop of 0.2% we saw in January (reported by Nationwide).
The rise in house prices seems to be fuelled by the stamp duty holiday and a change in housing preferences over the last year. Many people aren't wanting to live in flats, particularly high rise buildings due to the ongoing cladding scandal. The pandemic has also got people to reevaluate the amount of outdoor space they have alongside the ability to work from home effectively.
There are many pros and cons to stamp duty and the extension of the stamp duty holiday. Many said that the imminent end of the holiday in March was very 'cut throat', meaning a lot of people would miss out on the opportunity if measures weren't put in place. However, the extension, coupled with the grace period in place for those who aren't quite at completion by then will allow for the property market to ease back to normality.
It will still be a stressful time for lawyers and conveyancers, however the end is in sight and will hopefully give them some more breathing space compared what would have potentially been a very stressful month.
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