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Stamp Duty Land Tax ‘Holiday’

Buying a home can be stressful enough without having to worry about the additional fees that come with it, especially Stamp Duty Land Tax (SDLT) that can play a major factor when it comes to buyer’s budgets.

On 8th July 2020, the Chancellor announced that there would be an 8-month temporary cut in SDLT until 31st March 2021. This change means that there will be no charge on any residential property transactions with a market value under £500,000, so long as it is not an additional property purchase. This has been achieved by raising the SDLT threshold from £125,000 to £500,000. For property purchasers who would be buying a home for £500,000 or more, this will result in a possible total saving of £15,000 per purchase. This news resulted in a flood of new instructions from keen home owners looking to instruct and complete on their conveyancing transactions before 31st March 2021 in order to benefit from this relief.

However, how will this holiday be put into practice for those transactions with a property value above the threshold of £500,000 and also for those who usually would fall under the Higher Rate Stamp Duty bracket?

If your transaction falls under the ‘additional homes’ tax bracket the surcharge of 3% will still continue to apply. For example, if you currently own a property or multiple properties and your new transaction will not be replacing your main residence, you will be liable to pay the 3% additional properties SDLT. However, this charge will apply in accordance with the newly increased threshold meaning those additional property transactions of up to £500,000 will only have to pay 3% SDLT whereas before the rate payable would have been 5%.

Here is a table showing how the SDLT holiday benefits each transaction type and what percentage will be required to be paid:

 

 

 

 

 

 

 

 

As you can see from the above, the SDLT holiday can benefit all property buyers and has the biggest effect on those who are standard rate and additional rate buyers as first time buyers were of course already benefitting from the first time buyer rate stamp duty, meaning no stamp duty was payable by first time buyers until the £300,000 threshold.

Here are some examples of how it works in practice:-

  • Mr and Mrs A are buying their new home for £615,000 at the same time as selling their current home, and therefore the usual rate of stamp duty applies. Before the stamp duty holiday, their stamp duty was £20,750. If they complete during the stamp duty holiday the amount is reduced to £5,750, a saving of £15,000.
  • Miss B is buying a buy to let flat which counts as an additional property with a purchase price of £330,000. The stamp duty before would have been £16,400 but during the stamp duty holiday it is £9,900.
  • Mr C is a first time buyer, who is purchasing a property at £350,000. The rate previously would have been £2,500 (the threshold starts at £300,000) but during the stamp duty holiday, it is £0 as it is below the £500,000 threshold.

This mean any first time buyers purchasing a property over £300,000 will save money on stamp duty that they can add to their deposit instead which may give them a better mortgage rate.

The last thing to cover is shared ownership properties. In most cases when you are buying a share of a property, at the time of purchase you can opt to pay the stamp duty on the full property value rather than just your share. Why would anyone do this? This means the stamp duty has been paid and then if you staircase (buy more shares) in the future, you will not need to pay stamp duty. Why is this a good idea? It means you can benefit from the stamp duty holiday, which is unlikely to be in place in the future when you decide to staircase. It also means, if the property increases in price by the time you staircase, you do not pay more stamp duty at that time. See the example as follows:-

  • Mrs D is a first time buyer purchasing a 50% share of a property with a value of £450,000, meaning her share will be £225,000. No stamp duty would be payable on her share during the stamp duty holiday or prior to it as she is a first time buyer and it is less than £300,000. However if at the time of purchase she pays stamp duty on the whole transaction during the stamp duty holiday rate, as this is below £500,000 there will be no stamp duty to pay. When Mrs D decides 3 years later to buy the further 50% share, and after valuation the property price is now £480,000, the 50% share will cost her £240,000. If she had not paid tax on the whole transaction, she would now also have to find the funds to cover the stamp duty on the 50% share at the time of Staircasing. This is another way first time buyers can benefit from the stamp duty holiday.

The most important thing to note is there is a deadline of the 31st March and the purchase must have completed on or before that date in order to benefit from the stamp duty relief.

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Danni Tsigarides is a member of our conveyancing team, based at our Blackfen office. If you have any questions, regarding the stamp duty land tax holiday, please contact us on 020 8771 5254 and ask to speak to one of our residential property experts.

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