The Chancellor of the Exchequer, Rishi Sunak, recently announced an extension to the stamp duty holiday in relation to purchasing new property. This major announcement comes off the back of substantial pressure and evidence presented by those in the property and housing sector and following a very successful initial rollout of the holiday in 2020.
But what does it mean in practice for people looking to buy a home? As experts in property law and conveyancing, we’ve put together an easy guide to let you know all you need to know about stamp duty, the holiday, the extension, and what it means for you.
What is Stamp Duty?
Stamp Duty Land Tax (SDTL, or simply Stamp Duty), has to be paid if you are purchasing a property or plot of land over a certain price in England and Northern Ireland. The names and thresholds of the tax are different in Scotland (Land and Buildings Transaction Tax) and Wales (Land Transaction Tax).
You have to pay Stamp Duty when you buy a freehold property, a new or existing leasehold, or a property through a shared ownership scheme. It’s also paid when you are transferred land or property in exchange for payment (e.g. you take on a mortgage or buy a share in a house).
Prior to the stamp duty holiday, the tax was calculated and applied to any land or property £150,000 or higher and rose incrementally once the value hit new thresholds. You only paid tax on the amount in excess of those thresholds. For example, if the property was £275,000, you’d owe:
0% on the first £125,000 = £0
2% on the next £125,000 (taking you to the £250,000 threshold) = £2,500
5% on the final £25,000 = £1,250
Bringing your total Stamp Duty to £3,750
Paying Stamp Duty
While you can pay it yourself, your conveyancing solicitor will usually deal with the Stamp Duty return, as well as any payments due to you. HMRC can submit your return online once they have your solicitor’s authority on record and the effective date of the transaction. Naturally, our team of conveyancing experts would be more than happy to assist you with this.
Should you wish to pay Stamp Duty yourself, HMRC allows you to do this either online or as a paper transaction. More details regarding the step by step processes can be found on the government’s website.
The Stamp Duty Holiday
On 8 July 2020, the Chancellor announced a temporary break from paying Stamp Duty on all properties £500,000 or under until 31 March 2021. This was in direct response to the slump in the market due to the economic and social unrest caused by the outbreak of Covid-19.
During this time, say you bought a property for £400,000, you’d have avoided spending £10,000 in Stamp Duty – so the savings aren’t to be dismissed lightly.
The effects on the property market were dramatic to say the least. The vast savings people could make on purchasing property, coupled with a desire to upscale to larger homes in lockdown, led to the housing market climbing 8.5% – the highest annual growth rate since October 2014.
The Stamp Duty Holiday Extension
Rishi Sunak announced in his latest budget that the current Stamp Duty holiday will be extended by three months to the end of June 2021. This news will no doubt be welcomed by those working in the property market, as well as those looking to buy or sell property in the coming months. Furthermore, the Chancellor has outlined that the holiday will technically run until October, “To smooth the transition back to normal, the nil rate band will be £250,000, double its standard level, until the end of September – and we will only return to the usual level of £125,000 from 1 October.”
It was estimated that, had the holiday not been extended, around 300,000 property sales which had been agreed during the window would have no longer been applicable to receive the tax break, meaning many people would lose tens of thousands of pounds they hadn’t budgeted for.
Due to the boom in the housing market during the holiday, there has been an unprecedented number of people buying and selling homes, including a large rise in first time buyers. This has led to a large backlog of sales to finalise and was one of the driving factors behind the decision to move the end of the holiday back.
Despite this being a large relief to those involved in the housing market, there are those who believe any pushback is delaying the inevitable. The Centre for Policy Studies has said that any end of the stamp duty holiday would be a “sledgehammer blow to the housing market”. Regardless of this, the holiday’s extension provides welcome breathing space for the market.
How can I take advantage of the Stamp Duty holiday?
Whether you’re already in talks to purchase a property or you want to strike while the iron’s still hot, the Stamp Duty holiday extension can save you a significant amount of money.
First thing’s first, you should talk to a conveyancing solicitor about how best to approach the housing market and how your personal situation applies to paying tax on property or land.
When buying a property, Stamp Duty has to be paid to HMRC 14 days from the date of completion or you risk incurring a fine. This tight deadline is one of the reasons people recommend having a solicitor take care of these details and payments. Thankfully, we know a team of expert conveyancing solicitors who’d love to hear from you.
This means that you need to have agreed a fee as well as reached a completion of the purchase by the end of the holiday for the purchase to be covered by the Stamp Duty holiday. Considering the lengthy process of buying property, along with the busy nature of the market at the moment, we recommend wasting no time in entering the market.
If the property you’re purchasing is £500,000 or under, you’ll pay no Stamp Duty on that at all, with tax only paid on any value above that amount. Here’s a handy table to clear it up:
|Property value||Stamp Duty|
|Up to £500,000||Nothing|
|The next £425,000 (value between £500,001 to £925,000)||5%|
|The next £575,000 (value between £925,001 to £1.5 million)||10%|
|The remaining amount (value above £1.5 million)||12%|
As you can see, you stand to save multiple thousands of pounds should you act soon.
How Manak Solicitors can help you
You may have noticed the very subtle hints dropped earlier in this blog that we’re exceptionally proud of our team of conveyancing solicitors.
Dealing with Stamp Duty can be a complicated and arduous task, especially during the process of such a big venture as buying property. That’s why people usually have a solicitor or other conveyancing expert handle this to make sure the right amount is paid, you’re not stung by any unexpected costs, and the process is as smooth as possible.
From pushing through offers on property, to ensuring that the process gets resolved and signed off before the holiday ends, you’ll find working with our team the right decision. We’ve seen it all when it comes to buying and selling property around Kent and London, and will make sure your foray into the property market goes as smoothly as possible.