In a bid to give the housing market a boost, the Chancellor announced a stamp duty cut in England and Northern Ireland.
This means buyers will now only have to pay stamp duty on properties above £500,000. Previously, the stamp duty threshold was £125,000, so this is a major increase.
WHY IS THE GOVERNMENT DOING THIS?
Due to the coronavirus pandemic, the property market was effectively in lockdown from the end of March until mid-May, and it’s still not fully back up and running. Zoopla calculations in April revealed housing transactions could be down by 50% this year.
The aim of cutting stamp duty is to support the broader economy as the housing market impacts on other services. Buyers will need to employ solicitors, house movers, and they may need to decorate and buy new appliances.
The cut will offer significant savings for many as nearly nine out of ten transactions will no longer incur stamp duty, and the average stamp duty charge will drop by £4,500.
“The immediate increase in the stamp duty threshold will help sustain the rebound in housing market activity across England. The government will expect the change to stimulate more housing sales over the second half of the year and that savings made by buyers will be reinvested in home improvements, white goods and furniture, rather than bidding up the cost of housing,” commented Richard Donnell, research and insight director at Zoopla.
HOW LONG WILL THE STAMP DUTY HOLIDAY LAST?
This is only a temporary measure. This threshold comes into effect immediately; however, it only applies until 31st March 2021.
Stamp duty is payable once a transaction has legally completed. If you complete your purchase before the end of March next year, or you’ve paid 90% of the cost before then, you can take advantage of this stamp duty holiday.
HOW WILL THIS STAMP DUTY HOLIDAY BENEFIT PROPERTY INVESTORS?
It’s hoped the introduction of this stamp duty holiday will prompt a flurry of new purchases from residential buyers as well as new property investments in the coming months.
Property investors purchasing second homes and buy-to-let properties, and those purchasing through a limited company, will still benefit – even though the pre-existing 3% surcharge on these type of purchases will apply.
Although property investors will pay the 3% surcharge, they won’t have to pay the further duty on the first £500,000 of the property’s value. What this means is that a property investor spending less than £500,000 will only need to pay 3% tax on top of the purchase.
This temporary change in duty may also prompt individual buy-to-let landlords to transfer their properties to a limited company to benefit from tax relief on mortgage interest. This type of transfer would usually incur a stamp duty charge.
“Those looking to move personal property into a company name because of better tax treatment may have been reluctant to do so because of the stamp duty implications. Clearly that cost is lowered now,” said Steve Olejnik, managing director of mortgage broker Mortgages for Business.
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