Stamp duty holiday explained

The Chancellor’s stamp duty holiday has given the UK property market a much-needed boost during the COVID-19 pandemic. But now the tax relief for home buyers is being reduced. We look at stamp duty rates now and what will happen when the holiday ends completely.

The Chancellor’s stamp duty holiday has given the UK property market a much-needed boost during the COVID-19 pandemic. But now the tax relief for home buyers is being reduced. We look at stamp duty rates now and what will happen when the holiday ends completely.

Mark Gordon
From the Mortgages team
5
minute read
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Posted 1 JULY 2021

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, then extended until 30 June 2021, to help homebuyers and to boost the UK property market during the COVID-19 pandemic.

This meant that buyers completing a purchase on a property for less than £500,000 before 1 July 2021 didn’t have to pay stamp duty.

The government introduced the holiday in the hope that people would feel more confident about buying, selling and renovating, in turn supporting jobs and driving economic growth.

Stamp duty is now going back to normal rates, in stages. From 1 July to 30 September, it’s payable on the cost of properties above £250,000. Then, from 1 October, it will revert to pre-holiday rates, starting at £125,000.

How does the stamp duty holiday work?

Relief on stamp duty is now being reduced. But if you complete your house purchase by 30 September, you won’t pay any stamp duty on the property price up to £250,000.

Stamp duty rates from 1 July until 30 September

Property price     Stamp duty rate
up to £250,000     Zero
portion from £250,001 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 after 30 June and before 1 October, the SDLT will be:

  • 0% on the first £250,000
  • 5% on the next £500,000 = £25,000
  • Total SDLT = £25,000

From 1 July, first-time buyers who are buying a property costing £500,000 or less won’t have to pay stamp duty on the portion up to £300,000. 5% is payable on the portion from £300,001 to £500,000.

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

Stamp duty rates from 1 October 2021

Once the holiday ends, stamp duty rates will 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 from 1 October 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 from 1 October 2021

If you’re buying a home for the first time from 1 October 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 did the stamp duty holiday affect house sales?

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

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

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 April 2021, the Office for National Statistics (ONS) reported the average house price in England had risen by 8.9% over the year to £268,000, with the month showing house price growth slow for the first time since July 2020.

Are there any downsides to the stamp duty holiday?

Although buyers may be keen to benefit from what remains of the stamp duty holiday, buying a house is still a big commitment that needs careful consideration. It’s not something you want to rush into.

The tax break might have pushed prices up – so there’s a risk of no real saving in actual terms.

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.

However, the government has now announced the launch of a new mortgage guarantee scheme that aims to help homebuyers get a 95% mortgage of up to £600,000 with a 5% deposit. This may mean mortgages for people with small deposits will become more widely available.

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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