The government’s first mini-budget since Liz Truss became prime minister revealed a stamp duty cut among another measures to keep the economy afloat.
The Conservatives’ low-tax approach has been cemented with its latest mini-budget, delivered by Chancellor Kwasi Kwarteng. In it, he revealed a raft of moves designed to boost the country’s economy through the current inflationary environment.
As with any major tax and spending changes, there were plenty of supporters as well as critics. The top 45% rate of income tax was cut, while the National Insurance hike from February was reversed, putting “more money in people’s pockets”.
However, one of the biggest moves was the “permanent” stamp duty cut – rather than a temporary holiday which spurred the market on throughout the Covid pandemic. This is being touted as a way of keeping the housing market active while the country faces economic turbulence.
Stamp duty cut: the facts
With immediate effect (from 23 September), the stamp duty rates on residential property purchases in England and Wales are as follows:
|Property or lease premium or transfer value
|Up 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)
Prior to the changes, only the first £125,000 of a purchase was not eligible for stamp duty land tax (SDLT), and all the thresholds above this point have been raised, cutting the tax bill for homebuyers.
Where first-time buyers are concerned, the stamp duty cut is even more extreme, with no SDLT payable up to £425,000, and a 5% rate on the portion from £425,001 to £625,000.
For property investors, the 3% second home surcharge still remains. So 3% will be payable on any property up to the value of £250,000, and 8% on the next £675,000 (the portion from £250,001 to £925,000), and so on. The stamp duty cut will still prove beneficial, though, for most buyers.
The thought behind the theory
The government’s vision with these tax cuts and changes is to support the country’s economic growth – and one of the biggest drivers of this in the UK is housing market activity. By keeping the sector moving and encouraging buyers, this will be a driver for the economy.
According to Knight Frank‘s Liam Bailey, every existing property sale (excluding new-builds) contributes to GDP by a net £9,559. This includes renovations, spending on household goods, removals, surveys, agency fees and more.
Every 100,000 property transactions also supports more than 11,500 jobs, says Bailey, which is based on previous Knight Frank research with the Home Builders Federation.
Tom Bill, head of UK residential research at Knight Frank said: “Nobody can accuse the new government of lacking an economic vision.
“If its low-tax approach extends to stamp duty, recent history tells us it will trigger higher levels of demand in the housing market at a time when mortgages are getting more expensive, which will support social mobility.
“Prices could move higher in the short term if supply initially struggles to keep up but more balanced conditions will return provided the cut is immediate and permanent.”
More from the industry
Commenting on the stamp duty cut, Nathan Emerson, CEO of Propertymark, said: “The rebalancing of the thresholds for which stamp duty is paid, in particular for first time buyers is long overdue to catch up with house prices which have risen at an extraordinary rate.
“We did hope that stamp duty for downsizers or last time movers would have also been reviewed to release the latter part of the market, which when blocked stops movement further down for second steppers and first-time buyers, causing stagnation as buyers have nothing to move on to.”
And Paula Higgins, CEO of HomeOwners Alliance, said of the stamp duty cut: “The Chancellor’s announcement is much needed great news for first time buyers. The government’s changes to stamp duty mean more people will be able to afford to get on the property ladder.
“It’s especially welcome at a time when interest rates are driving up the cost of borrowing. Government has also reaffirmed its commitment to homeownership today. We agree it is critical: homeownership shouldn’t be for the richest in society, but achievable for everyone. This tax cut is a step in the right direction.
“The fact the change is permanent and starts today is particularly welcome as it will avoid the chaos of the previous stamp duty holidays. It means those who had put their move on hold earlier this week when speculation began can now crack on with their exchange and completion.
“The government has taken on board the recommendations of our study earlier this year which found almost a third more first-time buyers are having to pay stamp duty than they were five years ago. One in four of all first-time buyers now pay stamp duty.
“We are glad the government has listened and responded with reforms to the way the tax is applied to first time buyers.”