Stamp duty holiday explained

The Chancellor’s introduction of a stamp duty holiday has given the UK property market a much-needed boost during the COVID-19 pandemic. 
 
So what is the stamp duty holiday, how long will it last and what affect is it having on buying and selling homes? Let’s take a closer look.  

The Chancellor’s introduction of a stamp duty holiday has given the UK property market a much-needed boost during the COVID-19 pandemic. 
 
So what is the stamp duty holiday, how long will it last and what affect is it having on buying and selling homes? Let’s take a closer look.  

Tobi Owens
From the Mortgages team
4
minute read
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Posted 23 DECEMBER 2020

What is stamp duty?

Stamp Duty Land Tax (SDLT) is a tax you have to pay when buying a property over a certain price threshold in England and Northern Ireland.

Scotland and Wales have slightly different tax systems. In Scotland, buyers pay Land and Buildings Transaction Tax, while buyers in Wales pay a Land Transaction Tax.

Ordinarily, the property price threshold – over which buyers in England and Northern Ireland must pay SDLT – is £125,000, or £300,000 for first time buyers.

What is the stamp duty holiday?

The stamp duty holiday was introduced in July 2020 to help homebuyers and to boost the UK property market during the COVID-19 pandemic.

The stamp duty threshold has been temporarily increased to £500,000 up until 31 March 2021. This means that buyers purchasing a property for less than £500,000 before 1 April 2021 won’t have to pay stamp duty.

According to the government, nine out of 10 buyers won’t have to pay stamp duty during the freeze, saving an average of £4,500 in SDLT.

The government’s hope is that people will feel more confident about buying, selling and renovating property, which in turn should support jobs and drive economic growth.

How does the stamp duty holiday work?

To be eligible for the stamp duty holiday, you must be able to complete your house purchase by 31 March 2021.

If you buy a property for less than £500,000, you won’t need to pay stamp duty. If you buy a property for more than £500,00, you’ll only need to pay stamp duty on the remaining amount over £500,000.

If the property you’re buying is your main home, stamp duty rates up until 31 March 2021 are as follows:

Property price     Stamp duty rate
up to £500,000      Zero
portion from £500,001 to £925,000   5%
portion from £925,0001 to £1.5 million    10%
remaining amount above £1.5 million     12%

For example, if you buy a house for £750,000 before 31 March 2021, the stamp duty will be:

  • 0% on the first £500,000
  • 5% on the remaining £250,000 = £12,500
  • Total SDLT = £12,500

Use the HMRC stamp duty calculator to work out how much SDLT you may need pay.

Stamp duty rates from 1 April 2021

Once the holiday ends, stamp duty rates are predicted to return to how they were before the change on 8 July 2020. If the property you’re buying is your main home, rates will be as follows:

Property price     Stamp duty rate
up to £125,000  Zero
portion from £125,001 to £250,000   2%
portion from £250,0001 to £925,000  5%
portion from £925,001 to £1.5 million     10%
remaining amount above £1.5 million  12%

For example, if you buy a house for £750,000 after 1 April 2021, the SDLT will be:

  • 0% on the first £125,000
  • 2% on the next £125,000 = £2,500
  • 5% on the remaining £500,000 = £25,000
  • Total SDLT = £27,500

If you’re buying an additional residential property, for example a holiday home, you’ll usually have to pay 3% on top of SDLT rates. There are also special rules and rates if you’re buying a shared ownership property.

Stamp duty rates for first-time buyers after 1 April 2021

If you’re buying a home for the first time after 1 April 2021, stamp duty rates will be:

Property price      Stamp duty rate
up to £300,000   Zero
portion from £300,001 - £500,000  5%
portion from £500,001 - £925,000  5%
portion from £925,001 - £1.5 million  10%
remaining amount above £1.5 million 12%

How has the stamp duty holiday affected house sales?

Unsurprisingly, the potential savings gained from the stamp duty holiday has led to a buying frenzy.

UK property specialists Rightmove reported a record number of sales in September 2020, up 70% on the same time last year, while the average sell-time of 50 days is quicker than ever before.

For the first time ever, agents have more properties sold than for sale.

After the introduction of the stamp duty holiday in July, house sales rose by 15.6% in August and a further 21.3% in September 2020.

The temporary stamp duty changes in 2020 have also led to a rise in house prices, giving a much-needed boost to the property market, which slumped during lockdown.

In August, the Office for National Statistics (ONS) reported the average house price in England had risen by 2.8% over the year to £256,000. In October, Rightmove reported a 5.5% increase over the year, with the average asking price in England rising to an all-time record of £323,530.

Are there any downsides to the stamp duty holiday?

Although the stamp duty holiday is intended to help buyers save money, buying a house is still a big commitment that needs careful consideration. It’s not something you want to rush into.

As homebuyers hurry to take advantage of the tax break before it ends, it might be pushing prices up – so there’s a risk of no real saving in actual terms. And there’s concern that once the stamp duty holiday ends, there could be another slump in demand.

We should also remember that the coronavirus pandemic has caused a lot of financial instability, affecting income and job stability for many.

Mortgage lenders have become far more cautious. Many have tightened their lending criteria and increased the amount of deposit you’ll need to get a mortgage.

Some lenders have pulled their best mortgage deals off the market, leaving customers shopping around with less choice than before.

When applying for a mortgage it’s important to know that your home may be repossessed if you don’t keep up repayments on your mortgage.

If you’re looking to get a mortgage before the stamp duty holiday ends, our trusted partners London & Country Mortgages Ltd (L&C)** provide fee-free, impartial mortgage advice. Get in touch with one of their advisers here:

Go to L&C mortgages

**London & Country Mortgages Ltd (L&C) are a multi-award winning mortgage broker with over 20 years’ experience in helping people secure their perfect mortgage. Advice is provided by L&C, who are authorised and regulated by the Financial Conduct Authority (143002).

L&C are not part of Compare the Market Limited. Compare the Market receive a % of commission that our partner London & Country earns. All applications are subject to lending and eligibility criteria.

L&C will not charge you a broker fee should you decide to proceed with a mortgage.

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