Covid 19 And The Stamp Duty Holiday

OPINION

On 8 July 2020 the Chancellor gave a statement in Parliament outlining a stamp duty ‘holiday’. He said the aim of the holiday was to “catalyse the housing market and

boost confidence”. He cited the importance of the construction sector to the economy – it contributes £39bn a year and house building supports nearly 750,000 jobs – and a worrying trend characterised by house prices falling for the first time in eight years and the number of transactions falling by 50% in the first lockdown. Sarah Woodall, Partner and Tax

Lawyer at Harrison Clark Rickerby, looks into the scheme.

Tax savings

Thanks to the Stamp Duty Land Tax (SDLT) holiday, a residential property bought between 8 July 2020 and 31 March 2021 only starts to attract SDLT on the amount paid above £500,000 in England and above £250,000 in Wales . These rates apply whether you are buying your first home or have owned property before.

The reduced SDLT rates for England can be summarised:

PROPERTY OR LEASE PREMIUM OR TRANSFER VALUE

Up to £500,000 The next £425,000 (from £500,001 to £925,000) The next £575,000 (from £925,001 to £1.5m) The remaining amount (above £1.5m)

SDLT RATE

Zero 5% 10% 12%

For people buying a second home, in England the 3% higher rate for purchases applies on top of revised standard (holiday) rates, for the same period. This means for second home buyers the holiday rates are:

PROPERTY OR LEASE PREMIUM OR TRANSFER VALUE

Up to £500,000 The next £425,000 (from £500,001 to £925,000) The next £575,000 (from £925,001 to £1.5m) The remaining amount (above £1.5m)

ENGLISH SDLT RATE

3% 8% 13% 15%

NET PRESENT VALUE OF ANY RENT

Up to £500,000 Over £500,000

SDLT RATE

Zero 1%

Companies, as well as individuals buying residential property worth less than £500,000, also benefit, as do companies that buy residential property of any value where they meet the relief conditions from the corporate 15% SDLT charge.

Tax savings the holiday represents - Wales

In Wales the changes are a little different. The following SDLT holiday rates apply to residential property transactions effective from 27 July 2020 to 31 March 2021:

PRICE THRESHOLD

The portion up to and including £250,000 The portion over £250,000 up to/incl £400,000 The portion over £400,000 up to/incl £750,000 The portion over £750,000 up to/incl £1.5m The portion over £1.5m

WELSH LTT RATE

0% 5% 7.5% 10% 12%

A second home may now incur higher 4%rate in Wales. Similarly, if companies and trusts buy residential properties. The Welsh higher rates are different from England, as follows:

TRANSACTIONS WITH AN EFFECTIVE DATE ON OR AFTER 22 DECEMBER 2020, IN WALES:

The portion up to and including £180,000 The portion over £180,000 up to/incl £250,000 The portion over £250,000 up to/incl £400,000 The portion over £400,000 up to/ incl £750,000 The portion over £750,000 up to/incl £1.5m The portion over £1.5m 4% 7.5% 9% 11.5% 14% 16%

The rent over the term of a newly granted lease may be liable to tax. The tax due is calculated on its net present value (NPV). Transactions with an effective date on or after 22 December 2020:

NPV THRESHOLD

The portion up to and including £225,000 The portion over £225,000 up to/incl £2m The portion over £2m

Summarising the benefits

The benefits are best illustrated with a few examples. Buy a house for:

• £250k - in both England and Wales, the stamp duty is nil.

• £500k - in England, the stamp duty is nil; in Wales, £15,000.

• as a second home for £250k - in England, the stamp duty is 3% (£1,500); in Wales, 4% (£2,000).

• as a second home for £500k - in England, the stamp duty is £15,000; in Wales, £37,450.

When will the holiday end?

The SDLT holiday is planned to end on 31 March 2021. The rates will then revert to those in place before 8 July 2020. On 1 February 2021 Parliament did debate an e-petition set up to lobby government to consider extending the holiday. In that debate, the government said the holiday was designed to stimulate momentum in the property market, protect jobs in the sector and that as a policy, it had worked. Furthermore, government said it was the time limited aspect which had driven demand. This suggests without a U-turn, an extension to the holiday is now very unlikely.

What effect has the holiday had?

Latest Land Registry data shows in November 2020 property prices rose by 7.6% compared to the previous year; the number of transactions taking place in 2020 Q4 also increased year on year from 285,300 in Q4 2019 to 329,900 in Q4 2020. Sales of higher value properties, those over £500,000, rose by 56% over the year.

LTT RATE

0% 1% 2%

Will the peak in residential sales continue?

Evidence suggests that behaviour has changed following the pandemic with more people buying larger, detached properties in preference to flats, and in more rural locations. Previous peaks in residential sales have followed changes, or proposed changes, to SDLT, in 2009 and 2016. This suggests that the current surge in residential sales is unlikely to continue after the holiday ends.