The stamp duty holiday which began in July 2020 comes to an end this month, with old rates coming back into play from 1st October. It’s had a huge impact, but what will happen now?
In a bid to get the housing market moving, the government took drastic measures last year. Between 8th July 2020 and 30th June this year, the government raised the nil rate band for the tax to £500,000. This meant homes worth less than this were not eligible for stamp duty. Properties costing greater than this amount were only eligible for stamp duty on the additional cost.
Between 1st July and 30th September, the government lowered the nil rate band to £250,000. This still meant big savings for thousands of property buyers. Even second home buyers could benefit from the cut, although they had to pay the pre-existing surcharge.
From 1st October, rates revert back to normal. This means the nil tax band will return to £125,000. The full breakdown on stamp duty charges on first homes is as follows:
|Property or lease premium or transfer value
|Up to £125,000
|The next £125,000 (the portion from £125,001 to £250,000)
|The next £675,000 (the portion from £250,001 to £925,000)
|The next £575,000 (the portion from £925,001 to £1.5 million)
|The remaining amount (the portion above £1.5 million)
Hive of activity in the housing sector
The initiative has arguably proved extremely successful for the country’s property market. Initially, the incentive was meant to end in March 2021. This caused a huge flurry of pre-Christmas activity as people rushed to complete deals in order to take full advantage of the tax break.
The extension meant that appetite in the sector continued. This can be seen through the Treasury’s recent announcement of its takings from stamp duty in the first eight months of this year.
Between January and September, the country’s stamp duty bill was £7.6bn. This is £200m more than the same period last year, despite the fact that the tax cut would have waived the cost for many purchases. It demonstrates the true strength of appetite in the sector, with transaction levels reaching all-time highs.
Jonathan Stinton, head of intermediary relationships at Coventry Building Society, comments: “Stamp duty has continued to be a very lucrative source of income for the taxman, even with a large proportion of property purchases being exempt from it for over a year.
“Clearly, there’s still a very healthy market for higher value homes, second homes and rental properties.”
Could the government change stamp duty long-term?
Stinton is one of several commentators who thinks there is scope for change in the property tax. He suggests the government could raise thresholds on stamp duty in order to stimulate the market. As average house prices continue to rise, bigger tax bills could deter buyers.
He adds: “When the holiday ends in a few days’ time, property tax bills for the average home buyer in England will be more than double than in 2014 when rates were last reviewed.”
Former government minister Lord Willetts is another advocate for change. He believes a reformation could free up more housing stock, while also helping younger people.
“The cost of housing is holding back the younger generation,” says Lord Willetts. “We need to get more housing onto the market for them. A Proportional Property Tax is key to this.”
“It would replace council tax which has become increasingly regressive and is particularly hard on young people.”
How the government will take stock of the housing situation could become clear on 27th October. This is the date set for the Autumn Budget and Spending Review. This will be the second Autumn Budget for Chancellor Rishi Sunak, where he will set out tax and spending plans for the next three years.