What does the stamp duty holiday mean for you

What does the stamp duty holiday mean for you

The chancellor Rishi Sunak has given all home buyers in England and Northern Ireland a stamp duty holiday – from July 8, 2020 until March 31, 2021 — on property values up to £500,000, saving buyers up to £15,000.

It is now estimated that almost nine out of ten main home purchases will incur no stamp duty. However, stamp duty still needs to be paid on more expensive properties, second homes and buy-to-lets.

Stamp duty is calculated on completion and needs to be paid within 14 days — so if you were between exchange and completion when the rules changed you will benefit from the new rates.

The changes apply only to England and Northern Ireland. Scotland and Wales have yet to announce whether they plan to change their property tax systems.

Here we set out what the changes mean for you.

First-time buyers
First-time buyers purchasing properties costing up to £500,000 were already exempt from paying stamp duty on the first £300,000 and paid 5 per cent on the remainder. This means that for most first-time buyers outside London, who spend less than £300,000 on their first home, the chancellor’s announcement will bring no additional savings.

Those that spend between £300,000 and £500,000 can now save money — for instance, first-time buyers in London, who spend an average of £446,839 on a home (according to UK Finance mortgage statistics), will now not have to pay any stamp duty, which will save them £7,342, according to calculations by Lawrence Bowles, an analyst at the estate agency Savills.

For homes that cost more than £500,000, first-time buyers have previously been taxed the same as other home movers and they will continue to be so, which means they will make the same savings as home movers (see table below).

All first-time buyers now pay the same stamp duty rates as home movers.

Home movers
Previously home movers had to start paying stamp duty on the value of property over £125,000. Now they pay no stamp duty on the first £500,000.

This means that someone buying a home for £200,000 will save £1,500, someone buying one for £350,000 will save £7,500 and someone buying one for £500,000 will save £15,000. Those buying property for more than £500,000 will make no further savings. So the buyer of a £2 million house who would have previously paid £153,750 in stamp duty will now pay £138,750 — a saving of £15,000. Meanwhile, the buyer of a £5 million house would have paid £513,750 and will now pay £498,750 — again a saving of £15,000, according to Bowles.

For a home costing £685,721 (the average spent by a mortgaged home mover in London according to UK Finance), the stamp duty bill will be reduced from £24,286 to £9,286, saving the buyer £15,000. This is because they now pay no stamp duty on the first £500,000 and 5 per cent tax on the remaining £185,721, Bowles says.

Additional home buyers
Buy-to-let landlords and second-home buyers also benefit from the stamp duty reprieve, although they are still liable for the 3 per cent additional homes levy. This means that they pay 3 per cent instead of zero on the value of purchases up to £500,000.

This means an investor buying a home for £200,000 will reduce their stamp duty bill from £7,500 to £6,000 saving £1,500 under the new system. If they are buying a home for £350,000 they will save £7,500 by cutting their stamp duty bill from £18,000 to £10,500. Meanwhile, the bill for buying a home costing £500,000 or more will result in a saving of £15,000.

Other circumstances
Freehold sales, transfers and purchasing a lease are all subject to stamp duty at exactly the same rates as home movers. New leasehold sales and transfers are also the same except when the total rent over the life of the lease (net present value) is more than £500,000. Previously net present values of greater than £125,000 were taxed at 1 per cent, that threshold has now been raised to £500,000.