CHANGES IN STAMP DUTY RATES – 2020/2021
THE CHANCELLOR, RISHI SUNAK’s HELP FOR HOME BUYERS. WHAT DOES IT MEAN FOR THE HOUSING MARKET?
THE BUDGET DETAILS DIRECT FROM THE CHANCELLOR
The Chancellor confirmed that the UK ‘faces profound economic challenges’ set out how he intends to help to kick start the economy on the road to recovery.
Such is the importance of the housing market to the economy he has made sweeping, albeit temporary, changes to the Stamp Duty levels payable.
He has also helped employers retain staff by offering them a £1000 bonus to for all those furloughed and then retained up to January 2021. A new apprenticeship scheme has also been launched with a £2000 payment to businesses when they take on an apprentice.
The much-affected hospitality industry has also been given a financial boost with VAT being cut from 20% to 5% from 15th July 2020 until 12 January 2021. There are also to be 50% off vouchers on offer, in August, as part of the ‘eating out to help-out’ scheme.
WHAT IS STAMP DUTY?
Land Tax as it is properly called, is a tax paid by the purchaser of land in England and Northern Ireland. When a sale is completed the tax is calculated on the final sale price, and is immediately payable.
Prior to this ‘Financial Announcement’ by the Chancellor, there were two different levels at which Stamp Duty began. For the normal house movers the point at which Stamp Duty was payable was £125,000 but for first-time buyers it began at £300,000, this unless as a first-time buyer the house purchase price was £500,000 or more then the level reverted to the same as a house mover.
Both Scotland and Wales have their own separate systems. The Scottish and Welsh leaders have yet to announce any package.
WHAT ARE THE CHANGES THAT HAVE BEEN MADE?
The new levels of Stamp Duty will now only begin on property completions over £500,000. The level from £500,000 up to £925,000 will be 5% rather than the previous £125,000 or £300,000.
The changes also apply to second home or additional property purchases, for example those purchasing to place property on the rental market.
These sales attract a further 3% surcharge but the increase in the level at which Stamp Duty kicks in will still apply to these house purchases, thus the purchase of second homes or letting properties will also benefit from this reduction.
This new package will apply to all sales completions before the 31st March 2021. Those who are now partway through purchase but not yet completed will also be able to take advantage of the changes made by the Chancellor, which will be an unexpected welcome bonus.
HOW MUCH COULD THIS SAVE ON A HOUSE PURCHASE?
The reduction in the Stamp Duty levels, which comes into immediate effect, will give those who are purchasing up to the new threshold of £500,000 a significant benefit.
It is anticipated by the Office for National Statistics (ONS) that up to half a million (500,000) people may benefit from this change.
In particular, in the south-east and London where property prices are significantly higher the benefit for the first time buyer is expected to be felt the most as even the starter or first time buyer properties can be priced over the old level of £300,000 quite easily.
An example of a first-time buyer purchasing a property for £495,000, the purchase will now not attract any Stamp Duty, previously the duty would have been £9,750, this adds up to a significant saving. A normal house mover spending the same amount on a property would now save even more at £14,750.
Those buyers at the higher end of the market at say £600,000 will only pay 5% on the portion over £500,000 the saving at this level is a huge £15,000. The new amount payable will only be £5,000.
The saving for investors and landlords is equally helpful, against a property purchased at £250,000 the saving is £2500 and property of £495,000 the saving will be £14,750.
WHAT DOES THE CHANCELLOR HOPE TO ACHIEVE?
The housing market was completely closed during the lockdown period. Since the Chancellor gave the ‘Green Light’ that the estate agents and house selling websites could re-open there have been very positive signs that the housing market has begun moving again. Mortgage lenders, in particular, are reporting an upsurge in enquiries. The Treasury is wanting to ensure that this is not a short term position and that the green shoots of recovery continue.
The housing market is pivotal to many areas of the economy and the effect of a slow market will be reflected in many other areas, such as housebuilders and suppliers, DIY, and furniture sales. The Treasury believes that the additional spending generated by each house sale is equivalent to 5% of the house price.
The cut in Stamp Duty, it is hoped, will allow those who need to move for financial reasons the opportunity, as the reduction in Stamp Duty will allow the move to be brought forward.
Looking back at previous, temporary Stamp Duty reductions, there is a concern about an increase in prices but it is hoped that there will be consistent and positive movement in the market this time.
WILL HOUSE PRICES RISE BECAUSE OF THIS REDUCTION IN STAMP DUTY?
House prices have generally fallen since the start of the Covid-19 pandemic, this has produced uncertainty in the housing market. This uncertainty leads to an inevitable instability and slows down in house sales. People would prefer to stay put until the market settles and they can be more certain of prices.
This measure by the Treasury has been designed to support present house values rather than boost property prices. More of a counterbalance to the difficulties caused by the international pandemic and the ensuing economic damage caused by the lockdown.
The move to include landlords and investors is a nod to the whole financial situation the country has found itself in, as usually, these temporary measures have not included this sector of the housing market.
It is probably, as would be usual, that any increases in property prices may be seen as the Stamp Duty holiday draws to an end. This is likely to be when people will focus more on the tax break on offer, so any rises in property prices may come in the spring of 2021.
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