What do recent Stamp Duty changes mean?

Stamp Duty or, to give it its full name, Stamp Duty Land Tax (SDLT), is a tax paid to the Government when you buy a property which costs above a certain price. Recently, the Government cut Stamp Duty tax in England and Northern Ireland for some buyers. Ginetta Vedrikas looks at the situation example, in October 2022 the average price of a London property was £552,755, so for a first time buyer, the amount of Stamp Duty would now be £6,387.75. The way it is calculated is that between £0-425,000 0% is payable. Between £425,000-£625,000 (£127,755 in this case) 5% is payable, equating to a tax bill of £6,387.75.

In Scotland, the tax is called the Land and Buildings Transaction Tax; current rates are:

9 Up to £145,000 (£175,000 for first-time buyers) = 0%

9 £145,001 to £250,000 = 2%

9 £250,001 to £325,000 = 5%

9 £325,001 to £750,000 = 10%

9 Above £750,000 = 12%

In Wales it is called the Land Transaction Tax; current rates are:

9 Up to £180,000 = 0%

9 £180,001 to £250,000 = 3.5%

9 £250,001 to £400,000 = 5%

9 £400,001 to £750,000 = 7.5%

9 £750,001 to £1.5m = 10%

9 Above £1.5m = 12%

HOW DO YOU PAY STAMP DUTY?

In England, a buyer has 14 days to pay Stamp Duty from the date of completion. In Scotland and Wales, you have 30 days from the point of buying. If it takes longer, you could face a fine, or be charged interest on any duty that you owe. Buyers usually pay

SDLT through their solicitors, but you can also pay directly online, or by cheque or cash in some banks.

You can include SDLT in your mortgage loan, increasing the amount you borrow, but this means that you would end up paying a lot more in interest payments.

WHAT EFFECT DOES CHANGING STAMP DUTY RATES HAVE ON THE PROPERTY MARKET?

Some property experts fear that changing SDLT, especially putting a deadline on it, while helpful in the short term, can cause a bottleneck of buyers that ends up boosting house prices. When chancellor Jeremy Hunt announced that the cuts to SDLT would revert back in 2025, Nick Leeming, chairman of Jackson-Stops estate agency said, “Reversing the cut to Stamp Duty on properties under £250,000 and £425,000 for first time buyers is unwelcome news for the housing market. The decision to put a time limit on the tax break is likely to create a bottleneck of transactions in the first quarter of 2025 as buyers rush to lock in the more favourable Stamp Duty rate.

“While this rush to get a sale across the line will not be to the same extent seen during the last Stamp Duty holiday, this time limit will undoubtedly factor into many first time buyer’s decisions as these savings could be put towards utility bills, solicitors’ fees or upgrades on the home they purchase.”

During the pandemic, the Government announced a Stamp Duty holiday to help buyers whose finances were affected by Covid-19. The holiday meant that no tax was payable on the first £250,000 of a property, but many estate agents reported that the holiday caused a buying frenzy in the run up to the deadline which pushed up prices. The Office for National Statistics, ONS, reported that UK average house prices increased by 15.5% over the year to July 2022, up from 7.8% in June 2022.

SCRAP STAMP DUTY?

Some property groups are calling for SDLT to be scrapped completely – including for downsizers – so that more family homes come on to the market. Property website HomeOwners Alliance says that it will continue its campaign to scrap Stamp Duty for those buying a home to live in, which it believes will encourage downsizers to consider moving and will also help level the playing field, because those buying a home to live in will pay no Stamp Duty compared to those buying investment properties. Historically it says that first time buyers and buy-to-let investors have been competing for the same type of properties as they can deliver good rental yields.

Housebuilders Offer Deals And Incentives Including Paying Stamp Duty Costs

One way of avoiding paying any SDLT is to take advantage of deals from developers offering to pay the tax on your behalf. Help to Buy ended last October, but many developers are currently offering to pay SDLT, plus other incentives.

Millwood Designer Homes recently launched a collection of four semidetached four bedroom homes at its Lillybank development in Battle, East Sussex. The housebuilder promises to contribute £5,000 towards buyers’ Stamp Duty fees, explains Sales and Marketing director Philip Brown. “At Millwood, we’re aware of the added financial strain of the cost of living at the moment, so are pleased to be contributing £5,000 towards buyers’ Stamp Duty costs.”

The Hill Group says that its Equity Loan scheme for its development Rubicon at Knights Park in Cambridge is a great opportunity to buy, with only a 5% deposit and no SDLT payable.

Located in Eddington, the development is already 75% sold with just five studios left for sale. Prices start from £339,950 and Rebecca Littler, Group Sales and Marketing Director, says that the studios offer a great opportunity for first time buyers to take advantage of the Government’s recent change to the SDLT allowance. “This is an unmissable opportunity for first time buyers to ensure they secure the savings available to them while they can.”

St Modwen Homes found that in the run up to the deadline for the end of the Help to Buy scheme last October, searches for “when does Help to Buy end?” rose by a “staggering 850%”, but the national housebuilder recently announced a range of schemes and incentives to help first time buyers on to the property ladder.

Pointing to the new “deposit unlock” scheme – created by the Home Builders Federation – the housebuilder explains that first time buyers can now purchase a new build home with just a 5% deposit.

To further support first time buyers, St. Modwen Homes offers its “first time buyer boost”, a range of benefits to make buying easier and more affordable. This scheme allows you to reserve your property for £99 – so there are no large upfront costs.

The housebuilder will also cover solicitors’ fees and let you choose flooring free of charge. St. Modwen’s “deposit boost” incentive is a £5,000 gift towards your deposit so you may not need to save as much as you originally planned. The money can be put towards other costs such as legal fees, decorating or upgrades.

Expert Comment

The priority must be avoiding creating market bubbles and providing a stable environment. We should be looking to encourage fluidity throughout the market and a wider Stamp Duty reform is needed for this.

Nick Leeming, Chairman, JacksonStops estate agency

Expert Comment

This cut to Stamp Duty will create more affordability in an environment where interest rates and inflation are both rising quickly. First time buyers, in particular, are facing the end of the Help to Buy scheme without any replacement proposal, so the Stamp Duty cut will really assist them in making the move on to the property ladder. It doesn’t, however, address the fundamental issue of shortage of supply, which is inevitably increasing property prices, thereby making it harder for first time buyers to make the move into property.

Hinesh Chawda, MD of boutique property developer, Life Less Ordinary

Expert Comment

Every little bit should help first time buyers. Not having to pay a tax upfront when cash is tight will lend a helping hand for first time buyers to buy their first home. But the Stamp Duty exemption is not a game changer for first time buyers; it’s the seven years they need to save up for the deposit. And it’s not the higher mortgage rates either, as mortgage payments will still likely be less than their rental payments which have been increasing.

Paula Higgins, HomeOwners Alliance