In his summer statement, the Chancellor of the Exchequer announced an eight-month stamp duty holiday. The Government hopes the tax cut will catalyse the housing market and boost consumer confidence during the Coivd-19 crisis. But how will the stamp duty holiday work and should it influence your decision on when to buy your next home? Lockdown restrictions may have eased, but there is still a lot of uncertainty. So, you may be wondering if buying now is really the right thing to do, even with the potential savings in stamp duty.
Nicola Bennell a residential property solicitor here at Richard Reed answers some of your questions about the recent changes.
What is a stamp duty holiday and how does it work?
The stamp duty holiday is a temporary change in the level at which stamp duty starts to become payable.
During an eight-month period, the threshold at which stamp duty usually becomes payable will be increased from £125,000 to £500,000. If you buy a home for £500,000 or less during this time, you may not have to pay stamp duty at all. If the property costs more than £500,000, then you will only have to pay stamp duty on the excess.
For example, if you buy a house for £600,000, you will pay no stamp duty on the first £500,000 and five per cent on the remaining £100,000. This means you will pay a total of £5,000 in stamp duty, where previously you would have paid £20,000. You will have saved £15,000 in stamp duty, the maximum possible under these changes.
The table below sets out the rates of stamp duty which will apply on the purchase of your main home.
| Property value | Holiday rate | Usual rate |
| Up to £125,000 | 0% | 0% |
| The next £125,000 up to £250,000 | 0% | 2% |
| The portion from £250,001 to £500,000 | 0% | 5% |
| The portion from £500,001 to £925,000 | 5% | 5% |
| The portion from £925,001 to £1.5 million | 10% | 10% |
| The remaining amount above £1.5 million if any | 12% | 12% |
To qualify for the savings, you will need to complete your purchase before 31 March 2021. It is the legal date of completion that is important, not the date you exchange contracts or pay stamp duty to HMRC.
Who will these changes benefit?
The changes will apply to anyone buying a residential property during this period. The overall savings will tend to be greater where property prices are higher, but they should help anyone buying a property which costs more than £125,000, the current stamp duty threshold.
It is not just first-time buyers or those moving home who stand to gain. The changes also apply to investors and those buying second homes or buy-to-let properties, although they must still pay the surcharge which applies. For example, if you are buying a holiday home which costs £250,000 during this period, you will pay £7,500 in stamp duty. The rate of three per cent will apply to your purchase price as it is below £500,000. Previously, you would have paid £10,000 in stamp duty; three per cent on the first £125,000 and five per cent on the balance.
The table below sets out the rates of stamp duty which will apply on the purchase of a residential property which is not your main home.
| Property value | Holiday rate | Usual rate |
| Up to £125,000 | 3% | 3% |
| The next £125,000 up to £250,000 | 3% | 5% |
| The portion from £250,001 to £500,000 | 3% | 8% |
| The portion from £500,001 to £925,000 | 8% | 8% |
| The portion from £925,001 to £1.5 million | 13% | 13% |
| The remaining amount above £1.5 million if any | 15% | 15% |
What will happen at the end of this period?
If your purchase completes on or after 1 April 2021, then you will not benefit from these changes and will have to pay stamp duty at the usual rate. There is a limited exception if you have ‘substantially performed’ the contract, for example, by moving into the property before then. However, this is a complex area and will rarely apply to a conventional purchase. To be certain of getting the benefit of the savings, you must complete your purchase before then.
You can maximise your chances of meeting the 31 March 2021 deadline by ensuring you conduct all the necessary preparatory work well in advance. Because of the pandemic, surveys and searches may take longer than usual, so plan ahead and be flexible. Make sure you have your finances sorted out, including any mortgage offer.
Talk to your solicitor early on too, and make sure he or she is someone who is pro-active and will give your transaction their individual attention. A delayed completion date could result in you losing the benefit of these stamp duty savings, and a good solicitor will look at ways to mitigate this risk. Using an online or budget conveyancer could prove a false economy, particularly in the current environment.
Should I buy a property now?
Buying a new home is a very personal decision and it is important to do what is right for you. If you have already decided to move and found a property you love, then it makes sense to take advantage of these savings where possible. However, even if you do everything right, there is still a risk you may not be able to complete by the deadline particularly if you are in a chain of transactions. So, you should plan your finances to allow for this possibility.
If you are uncertain over whether to buy now or to wait for more settled conditions, it may help to balance up the pros and cons.
Advantages of buying now
- The saving in stamp duty could be significant, and the sooner you start the home-buying process, the more likely you are to meet the deadline.
- The relaxation of lockdown restrictions makes it easier to view properties, and some of the conveyancing bottlenecks are easing.
- Interest rates are low. There are fewer mortgage products available than before the pandemic, but you may find it easier to get a suitable deal now than in six months’ time.
Disadvantages of buying now
- Some commentators think house prices will rise to absorb the stamp duty savings and could drop once the stamp duty holiday ends.
- Driven by the 31 March 2021 deadline, you may feel pressured into compromises you would not ordinarily make.
- Systems may struggle to cope with the temporary increase in demand, making it more likely that transactions, particularly those in chains, may fall through.
Ultimately, it is your decision and you will need to consider your personal circumstances. You are likely to be living in your new home for many years to come, so do not feel rushed into making the wrong choice to save on stamp duty. Whenever you decide to buy, your solicitor will be there to give you timely and impartial advice.
For further information about the stamp duty changes, or about buying or selling your home in general, please contact Nicola or another member of our residential property team on 0191 567 0465 or email them at: [email protected]
