Rishi Sunak, UK Chancellor of the Exchequer, has announced a temporary change to property stamp duty. The measure will be in place until April 2021, meaning that homebuyers will be exempt from paying stamp duty payable on the first £500,000 of the price they paid for their property.
The current threshold for starting to pay stamp duty on property purchases in England and Northern Ireland is £125,000. If you are a first-time buyer, this threshold is raised to become £300,000, but only for properties valued under £500,000.
As of 8 July, the threshold for paying stamp duty will be raised to £500,000, and this temporary measure will remain in place until 31 March 2021. This change to stamp duty collection only applies to England and Northern Ireland, and it was introduced as part of the Chancellor’s recent economic statement.
According to a Treasury spokesperson, nine out of ten people involved in property purchases will be exempt stamp duty, regardless of moving up the property ladder, downsizing, or being a first-time buyer.
Stamp Duty: What Is It, And What Does It Cost?
Stamp Duty Land Tax, or stamp duty, is a tax levied on property or land purchases that costs more than a certain amount specified by the government. The rate of stamp duty payable on a land or property purchase depends on the type of land or property, and the price you pay.
Current stamp duty rates for residential properties in England and Northern Ireland (before the temporary changes) are as follows:
- Up to £125,000 – Nothing to pay.
- On the portion of the price between £125,001 and £250,000 – 2% to be paid.
- On the portion of the price between £250,001 and £925,000 – 5% to be paid.
- On the portion of the price between £925,001 and £1,500,000 – 10% to be paid.
- On the portion of the price, over £1,500,001 – 12% to be paid.
First-time buyers in England and Northern Ireland who are purchasing a property less than £500,000, are currently exempt from any stamp duty payable on the first £300,000. On the portion over £300,001 up to £500,000, they would pay a stamp duty of 5%. For properties costing more than £500,000, first-time buyers follow the standard stamp duty bands as listed above.
However, as a result of the temporary measures recently introduced, nobody purchasing a property up to a value of £500,000 will be required to pay stamp duty.
Properties costing over £500,000 remain within the stamp duty bands previously stated above. However, buyers of these properties will enjoy saving £15,000 on the first £500,000 of the property price.
For example, as a first-time buyer purchasing a property for £600,000, you would need to pay stamp duty of £5,000 under the new temporary stamp duty bands. This figure equates to 5% of the £100,000 over the £500,000 threshold. Previous to the changes, the stamp duty would have been £20,000.
If you already own a home and buy a second property, there is a 3% stamp duty tax on properties worth more than £40,000.
Land Transaction Tax Rates For Scotland and Wales?
Wales and Scotland have a different system of property duty to England and Northern Ireland.
The Land and Buildings Transaction Tax rates in Scotland are as follows:
- £145,001-£250,000 – 2% of the price.
- £250,001-£325,000 – 5% of the price.
- £325,001-£750,000 – 10% of the price.
- Above £750,000 – 12% of the price
In Scotland, landlords are required to pay another 4% on top of the standard Land and Buildings Transaction Tax.
The Land Transaction Tax rates in Wales are as follows:
- £180,001-£250,000 – 3.5% of the price.
- £250,001-£400,000 – 5% of the price.
- £400,001-£750,000 – 7.5% of the price.
- £750,001-£1.5m – 10% of the price.
- Over £1.5m – 12% of the price.
Landlords in Wales are required to pay another 3% on top of the standard Land Transaction Tax.
How Much Money Can Homebuyers Save?
Under the temporary stamp duty measures, the amount that buyers in England and Northern Ireland can save depends on the price of the property being bought. The higher the cost (up to a value of £500,000), the more considerable potential savings.
For instance, purchasing a £400,000 property as a first-time buyer before the change, the stamp duty payment would have been £10,000. This figure is derived from taking 2% of the portion between £125,000 to £250,000 (£2,500), and 5% of the proportion between £250,001 to £400,000 (£7,500). The temporary measures mean you won’t pay anything, giving you a saving of £10,000.
The average savings are likely to be around £4,500, according to the Treasury.
How long will the temporary stamp duty break be in place?
The stamp duty break was introduced as a temporary measure to boost the stalling property market. It came into effect immediately and will remain in place until 31 March 2021.
Critics of the measure fear that the measures will simply delay the slump in the property market, as people accelerate their purchase plans to take advantage of lower duty payments.
If contracts have already been exchanged, but the purchase is not completed, do the measures apply?
Payment of stamp duty becomes liable on completion of the property purchase. So long as the property purchase did not complete before Wednesday, 8 July 2020, you will benefit from the new measures, even if contracts have already been exchanged.
How Much Revenue Does The Government Raise From Stamp Duty?
According to HMRC (HM Revenue and Customs) figures, every year, the government raises around £12bn from collecting stamp duty. This amount equates to approximately 2% of the Treasury’s total tax revenue. The temporary stamp duty measures will cost around £3.8bn.