Stamp Duty Holiday - What Does it Mean for You?

The Government has introduced a temporary Stamp Duty holiday for homebuyers purchasing property in England and Northern Ireland between July 2020 and March 2021.

On 8 July 2020, the tax-free threshold for Stamp Duty was raised from £125,000 to £500,000 for all people buying a home to live in (as their primary residence). Other types of buyers, such as buy-to-let investors and people purchasing second homes or holiday homes will also benefit from lower Stamp Duty rates.

This means that buying a home has become significantly cheaper for the vast majority of homebuyers and could convince thousands of people to enter the property market. It is hoped that the holiday will help to kick start the housing market after the brief slump caused by the Covid-19/Coronavirus pandemic and keep the momentum going throughout this economically uncertain time.

So how much could you save if you choose to buy a home during the Stamp Duty holiday?

What is Stamp Duty?

Stamp Duty Land Tax is a tax you must pay when purchasing residential property in England or Northern Ireland. In Wales and Scotland you do not pay Stamp Duty but must pay Land Transaction Tax or Land and Buildings Transaction Tax respectively. The amount of Stamp Duty you pay depends on the value of the property you buy.

There are some allowances and reliefs available from Stamp Duty, such as:

The tax-free allowance – typically on main residences, there is no Stamp Duty on the first £125,000 of the value of the property
First time buyer relief – buyers purchasing their first home typically do not have to pay any Stamp Duty on the first £300,000 of the value of the property (up to an overall purchase price of £500,000)

The rates of Stamp Duty for non-main residences such as buy-to-let investments and second homes are 3% over the standard rates. For example, pre-holiday, Stamp Duty on additional home purchases up to £125,000 was 3% of the property purchase price.

Why was the Stamp Duty holiday introduced?

In March 2020, the Covid-19/Coronavirus pandemic forced the country into lockdown. With a nationwide ban on gatherings, house viewings and home moves, the property market ground to a halt. Even now the country has started to open back up, homebuyers have been understandably cautious about making such a large and life-changing purchase at such an uncertain time. The Stamp Duty holiday was introduced to try to convince buyers to take the plunge and restart the housing market.

How does the Stamp Duty holiday work?

The Government has temporarily raised the tax-free threshold from £125,000 to £500,000. While the holiday is in force, the standard rates of Stamp Duty are:

£0 - £500,000 – 0%
£500,001 - £925,000 – 5%
£925,001 - £1.5 million – 10%
Over £1.5 million – 12%

This means that the majority of homebuyers will not have to pay any Stamp Duty while the holiday is in place. For example, a property purchase worth £500,000 that would have attracted £15,000 in Stamp Duty under the pre-holiday rates will now be completely exempt.

People purchasing higher value properties will also see savings. For example, Stamp Duty on a property worth £600,000 would have cost £20,000 pre-holiday. Under the holiday, Stamp Duty would be £5,000.

When will the Stamp Duty holiday end?

The Stamp Duty holiday is due to end 31 March 2021 and you must have completed the purchase by that date. Any purchases completed after that date will pay Stamp Duty at the normal rates.

How will the Stamp Duty holiday affect first time buyers?

First time buyers will not be negatively affected by the changes. Under the pre-holiday rates, first time buyers were completely exempt from Stamp Duty for purchases up to £300,000. For purchases between £300,000 and £500,000, they had to pay the standard rate of 5% and for any purchases over £500,000, there was no first time buyer relief.

Under the holiday rates, first time buyers will also receive tax relief on purchases up to £500,000. For any purchases over £500,000, the standard rates will apply, meaning first time buyers will receive the same savings as other homebuyers.

How will the Stamp Duty holiday affect landlords and investors?

People purchasing additional properties other than their main homes such as buy-to-let landlords, residential property investors, and people buying second homes will also see Stamp Duty savings.

These types of buyer will continue to pay a 3% surcharge but on top of the holiday rates instead of the standard rates. For example, for purchases up to £500,000, Stamp Duty will be charged at a rate of 3%.

Although these savings are significant, the Government is potentially planning other changes to property taxation that could also impact landlords. The Office of Tax Simplification is currently reviewing Capital Gains Tax (a tax that falls due when selling assets for a profit) and deciding whether it is in need of reform. For this reason, many people may still be cautious about diving into the buy-to-let property market.

How will the Stamp Duty holiday affect home sellers?

Home sellers do not pay Stamp Duty so will not be directly affected by the holiday. However, the changes do appear to be stirring movement within the residential property market which has been stagnant for many months due to the Covid-19/Coronavirus pandemic.

Now lockdown on the property market has lifted, the Stamp Duty holiday could convince otherwise cautious buyers to enter the market, pushing up demand and potentially increasing house prices. Some sellers may even feel confident putting their asking price up to account for the extra money in buyers’ pockets.

Do you need advice about buying a home?

At Lovell Chohan Solicitors, we have a team of friendly and dedicated residential conveyancing solicitors ready to help you take your next step on the property ladder.

Whether you are a first time buyer or an experienced buy to let investor, we can provide practical advice and handle all the legal aspects of your transaction on your behalf, including managing Stamp Duty and liaising with HMRC.

We are Conveyancing Quality Scheme accredited by the Law Society in recognition of our high standards of advice and client care. We are happy to offer most of our clients fixed fee conveyancing packages so that you can proceed with us with a full understanding of how much your property purchase and/or sale will cost.

For further information, get in touch with our conveyancing solicitors in London or visit our pricing page for information about our fees.