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29 September 2022
The recent announcement that stamp duty tax is to be cut on properties up to the value of £250,000, is part of a government drive to stimulate economic growth and to help first time buyers get onto the property ladder. Associate Solicitor Samantha Pattle looks at what the stamp duty cut could mean for house buyers and the residential housing market.
12 months ago, the Government ended the stamp duty holiday which had been brought in to help home buyers whose finances were hit by Covid. Now the Government has cut stamp duty again in a bid to get more people moving and to help first time buyers. But will it work?
What is stamp duty land tax (SDLT)?
SDLT is a tax payable by homebuyers purchasing a property in England and Northern Ireland. The amount paid is dependant on the value of the property and is payable on both freehold and leasehold properties. A similar tax is paid in Scotland and Wales, but the rules and thresholds are different.
How will the SDLT changes work?
Under the new system the threshold at which buyers have to pay the duty has risen from £125,000 to £250,000. Buyers will then have to pay 5% of the value of the home from £250,000 upwards. Properties between £925,000 and £1.5m will still be taxed at the current rate of 10%. Any property valued above that price will be taxed at 12%.
The level at which first time buyers have to pay stamp duty will increase from £300,000 to £425,000. Under the plans, first time buyer relief will be applicable on properties valued up to £625,000, compared to the current rate of £500,000.
What about a second home or an investment property?
The changes will also benefit buyers of second homes and investment properties but beware as buyers will still have to pay the second property surcharge.
What if we have exchanged contracts?
SDLT is payable on completion, so if buyers have exchanged but not completed, they will still benefit from the new changes.
Will the changes in SDLT boost the residential property market?
Residential property transactions have remained buoyant following the ending of the last stamp duty holiday 12 months ago. Demand for more space and low interest rates fuelled the boom in the sector. Although, the stamp duty cut may help some first-time buyers, especially in London where properties are more expensive, it remains to be seen whether these new measures on SDLT will help the market. The hike in interest rates, inflation, the cost-of-living crisis and the decline in fixed rate mortgage deals may put some would be buyers off. There is still a huge demand for property, but the lack of housing stock also plays a part in how the market will perform.
