How Will the Stamp Duty Holiday Benefit Me?

039P - piggy bank on beach - resize a.jpg

When the government announced that it was sending Stamp Duty on holiday, we were there to help it pack. Banishing this pesky tax for a few months opens a window of opportunity for buyers and sellers alike – time to bring back some happy into this weird world. Here’s how it could benefit you …

 

What is Stamp Duty?

If you’re hazy about what Stamp Duty even is, then check out this blog we published a while ago that explains everything you need to know. It’s basically a tax that is payable by the buyer on most freehold or leasehold transactions. The amount you have to pay varies depending on a number of things, including the value of the property, and whether it’s your first home, subsequent home or a buy-to-let. 

 

What’s Changed?

Previously, residential first-time buyers purchasing a home to live in enjoyed a Stamp Duty holiday of their own – they only started to pay the tax when the property they were buying was over £300,000. For anyone who had owned property before, Stamp Duty kicked for properties sold at £125,000 and over.

Homes bought and sold as primary residences during the Stamp Duty holiday will operate under a much simpler model. The new rates are in force from 8th July 2020, until 31 March 2021, and during this period Stamp Duty is no longer payable on properties valued up to £500,000 for ANY homebuyer

 

During the Stamp Duty holiday, the rates for both first-time buyers AND those who have owned property before look like this:

Value of Property

 

£ From

£ To

Stamp Duty % Rate Payable

 

 

 

£0

£500,000

0%

£500,001

£925,000

5%

£925,001

£1.5 million

10%

Over £1.5 million

 

12%

 

This change is a huge incentive for buyers and sellers to get out into the market, as we’ll see below.

 

I’m Not Great with Numbers - Give it to me in £

Let’s look at an example to help make sense of the figures in terms of real money.

The Stamp Duty % Rate Payable only applies to that portion of the purchase price that falls within any given band. We’ll consider a property sold at £350,000, and see how much you could save as a buyer while Stamp Duty is sunning itself on a remote island somewhere until next April:

 

First-time buyers

Previously, the Stamp Duty rates for first-time buyers looked like this:

Value of Property

 

£ From

£ To

Stamp Duty % Rate Payable

 

 

 

£0

£300,000

0%

£300,001

£925,000

5%

£925,001

£1.5 million

10%

Over £1.5 million

 

12%

 

First-Time Buyer Stamp Duty on £350k Before Vacation:

Stamp Duty on £0-£300,000 = 0% = £0

Stamp Duty on £300,001-£500,000 = 2% = £4,000

Total Stamp Duty to pay = £0 + £4,000 = £4,000

 

Buyers who have owned property before

Previously, the Stamp Duty rates for people who have owned property before, looked like this:

Value of Property

 

£ From

£ To

Stamp Duty % Rate Payable

 

 

 

£0

£125,000

0%

£125,001

£250,000

2%

£250,001

£925,000

5%

£925,001

£1.5 million

10%

Over £1.5 million

 

12%

 

Subsequent Owner Stamp Duty on £350k Before Vacation:

Stamp Duty on £0-£125,000 = 0% = £0

Stamp Duty on £125,001-£250,000 = 2% = £2,500

Stamp Duty on £250,001-£350,000 = 5% = £5,000

Total Stamp Duty to pay = £0 + £2,500 + £5,000 = £7,500

 

Under the new Stamp Duty holiday regime:

In both cases (first-time and subsequent buyer) the Stamp Duty payable in our £350,000 example between now and the end of March 2021 looks like this:

 

During Vacation (the new normal) on £350k:

Stamp Duty on £0-£500,000 = 0% = £0

Total Stamp Duty to pay = £0 (That’s right: ZERO. Not too shabby.)

 

Are Second Home and Buy-To-Let purchases affected too?

In times of national strife governments have been known to suppress property investment in favour of measures to support those who are struggling to get onto, or to climb, the property ladder. But his has not been the case this time around.

Keen to maintain momentum in the market, the government have applied the new Stamp Duty rates to second and buy-to-let home purchases too. Buyers are still subject to the 3% surcharge on the new rates for these types of purchases, but in essence they benefit from the measures just as much as first-time and subsequent home buyers.

 

What does this mean for Buyers?

For buyers at any stage of their home-purchase journey this is all clearly great news. You stand to save up to £15,000 in tax (for properties at £500,000), and can instead choose to save, or spend that money in whatever way you choose.

The Land Registry records all property transactions in the UK, and their data suggests that around 90% of all property purchased in England is valued at under £500,000. This means that the vast majority of buyers will benefit from the scheme. 

According to Zoopla, the current average property price in Luton is £243,412, smack bang in the middle of the range where buyers can benefit from zero Stamp Duty. Notice, too, how this value is just below the pre-vacation Stamp Duty threshold of £250,000 (the level above which 5% Stamp Duty kicked in).

This average price will have been driven in part by the desire for buyers to avoid that additional tax burden. Now that the threshold (and the one at £125,000) has been removed, it opens up a new range of properties of interest to buyers with budgets around those levels.

 

What’s in it for Sellers?

You’d be forgiven for thinking that sellers have been forgotten about in the government’s grand plan. After all, it’s buyers who pay the tax, and now that they don’t have to for a while it’s they who will benefit most directly from Stamp Duty’s vacation.

But this isn’t necessarily true.

Let’s just recap the numbers in the two examples above. The removal of Stamp Duty saves the first-time buyer £4,000 and the subsequent buyer £7,500 on a home sold for £350,000. That’s a tidy wedge.

For some buyers, this means they have more cash left in their hand to spend elsewhere – perhaps on furnishings, or home improvements.

For others, it means that they can afford to spend a little more on buying their property. And that might just mean that there is more room for negotiation on price. It could also open your property up to buyers for whom the value of your home was previously out of reach, giving you a better chance of selling quickly at a price that suits you.

Buyers often stretch to acquire the most expensive house they can afford. This is basic human nature – most people don’t move all that often, so it’s worth a little early pain to secure that long term gain of the property that best suits your needs.

Removing the headache of Stamp Duty from the cost equation gives buyers greater choice. And as that magic £250,000 threshold that was perhaps holding buyers back is no longer an issue, there is the potential for average prices to nudge higher as buyers feel more flush, and seek properties that were previously out of reach.

 

How healthy is the housing market right now?

Tax cuts and fancy financial footwork are all well and good, but like all things that look good on paper the Stamp Duty holiday is only interesting if homes are being bought and sold. We’re happy to report that the market in and around Luton is buoyant, despite Covid-19, lockdown, and a cautious mortgage market.

Sales have been racing across the books here, and many clients have already benefitted from the government’s Stamp Duty measures, even though they only came into force a few weeks ago.

Our new hub at Round Green is proving to be the ideal space from which to continue delivering great service to our clients, and we’ve been hiring additional staff to cope with demand, to ensure we continue to offer our stellar service to everyone who gets in touch.

Penrose Estate Agents can advise you on the amount of Stamp Duty you may be liable to pay on any property purchase with us. At present, the new rates are only set to be available for the next eight months. If you’re considering buying, selling or investing, then act now to avoid missing out. With rates this attractive, it’s definitely time to move.

 

Image - © Robert Hyrons | Dreamstime.com

Posted by

Share: