buy-to-let tax stamp duty

The latest on stamp duty: what lies ahead for the property tax?

The stamp duty holiday for properties valued at £500,000 or below has come to end. What is expected for the property tax moving forward?

Stamp duty is a property tax due within 14 days of completing a property purchase. Usually, a buyer’s conveyancer or solicitor will file the return and transfer the money on their behalf.

In a bid to spur the property market back to life, the stamp duty holiday was first announced on 8 July 2020 in England and Northern Ireland. This allowed buyers to pay no duty on purchases priced at or below £500,000.

This provided buyers a potential savings of up to £15,000. The tax holiday was originally set to finish at the end of March. But as there was a backlog of property transactions causing delays, the holiday was extended until 30 June 2021.

In a normal year, property transactions usually take an average of three months from a sale being agreed to completion. However, due to the rise in property market activity over the last year, the average time it takes for a sale to complete is now four months, according to Zoopla.

Tax savings can still be made

While the full stamp duty holiday has come to an end, there is still a tax break available as a staggered return to previous tax rates was implemented. In order to avoid a ‘cliff edge’, the threshold was lowered from £500,000 to £250,000 between 1 July and 30 September.

This means buyers of a main home won’t pay any stamp duty on the first £250,000 of the purchase price. This allows buyers the ability to save up to £2,500 if the property purchase is completed by 30 September.

There are ways to help boost your chances of buying in time for this deadline. For starters, stay in close contact with your conveyancer or solicitor. Buyers and investors could even consider purchasing property at auction, which usually takes a much shorter amount of time to complete.

What will happen from the beginning of October?

From 1 October, stamp duty rates will return to normal pre-pandemic levels. Buyers of main homes will be charged from 2% to 12%, or up to 17% for foreign investors. The tax rate due depends on the property’s value and if the buyer owns more than one home or if it’s a buy-to-let.

The standard stamp duty rates depends on a property’s value. From 1 October, the rates will go back to the following:

  • 0% up to £125,000
  • 2% between £125,001 and £250,000
  • 5% between £250,001 and £925,000
  • 10% between £925,001 and £1.5m
  • 12% on any amount above £1.5m

For owners of more than one property or buy-to-let landlords, a 3% surcharge will be due on top. Since April 2021, there has also been an additional 2% surcharge for non-UK residents buying property.

At that point, stamp duty relief will once again be available for first-time buyers purchasing properties at or below £500,000. Buyers getting their first step onto the property ladder will be exempt from paying the tax on properties costing up to £300,000. And they will only need to pay 5% on the value above that.

How stamp duty impacts buyers and investors

In recent years, there have been calls for stamp duty to be overhauled. The success of the tax holiday has further led some property professionals to say there should be a permanent reduction.

Recent data from HMRC showed property transactions doubled on the year as a result of the stamp duty holiday. For some buyers, stamp duty has been hindering their ability to move more often.

A recent study by polling company Opinium and estate agent Jackson-Stops revealed 30% of homeowners said they would consider moving more regularly is the stamp duty holiday was made permanent on the first £500,000 of a home purchase. This could equate to an extra 350,000 housing transactions each year.

Nick Leeming, chairman of Jackson-Stops, comments: “This research demonstrates how SDLT can stifle transactions, significantly reducing the market’s full potential and limiting the economic opportunities that arise out of a thriving property sector.

“Permanent reform of property taxation and regulation, including SDLT, could help the market translate this momentum into sustained, long-term success, while better supporting the aspirations of buyers and vendors, and giving businesses across the UK the opportunity to recover and grow.”

Recently, the government has said it won’t permanently reform stamp duty, despite MPs on the Treasury Committee describing the property tax as not being fit for purpose. The government feels it’s an important source of government revenue, particularly post-COVID.

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