Stamp Duty Holiday Extension?
The stamp duty holiday for property buyers is set to end on 31st March 2021 unless the chancellor, Rishi Sunak decides to extend in his 3rd March 2021 budget.
If the holiday isn’t extended, anyone buying a property valued between £125,000 and £500,000 will have to pay stamp duty tax from 1st April 2021. Landlords and homebuyers will be keeping a keen eye on this budget…
Estimates suggest that as many as 300,000 sales could fall through because the stamp duty holiday may expire, but there’s no way of knowing yet how accurate that prediction will be.
Its is rumoured that Rishi Sunak may extend the March 31 deadline by six weeks to mid-May, to avoid tens of thousands of fall throughs and what it calls a “completion trap”!
Zoopla predicts that there will be a sudden drop-off in sales, with an expectation of 20% fewer transactions between April and June compared with the first three months of the year.
Current Stamp Duty Rates
For properties purchased up-to £500,000 and completed before 31st March 2021, no stamp duty tax is paid.
From £500,0001 to £925,000, buyers must pay 5 per cent to the government, rising to 10 per cent on the portion between £925,001 to £1.5 million. Above £1.5m, stamp duty is 12 per cent.
For example, if you bought a house for £615,000 next month, you would pay nothing on the first half a million pounds and then 5 per cent on the remaining £115,000, which is £5,750.
The introduction of the stamp duty holiday has caused the property market to go into overdrive with many landlords, first time buyers and other home owners taking advantage the effective property discount.
On the flip side this mass activity has caused the property prices to become inflated access the country even during these stringent lockdowns…
There were signs the growth has slowed in the latest figures with annual growth in average sold prices falling to 6.4 per cent in January.
Future Stamp Duty Rates
Unless otherwise stated the stamp duty rates will return to those before holiday was introduced on 8th July 2020:
- Up to £125,000 – no stamp duty
- From £125,001 to £250,000 – 2 per cent
- £250,001 to £925,000 – 5 per cent
- £925,001 to £1.5 million – 10 per cent
- Above £1.5 million – 12 per cent
As before, each of the rates only applies to the portion of the value that is within that band. For example, if you buy a house in April 2021 for £325,000 you will pay:
- Nothing on the first £125,000
- 2 per cent on the next £125,000 = £2,500
- 5 per cent on the final £75,000 = £3,750
- Total tax of £6,250
First-time buyers in England, Wales and Northern Ireland do not pay stamp duty on purchases up to £300,000. The changes, if they go ahead, will most affect people buying a property for between £125,000 and £500,000. With the average sale price at £250,000, a lot of buyers will face additional costs. Sales that are not already underway are unlikely to be completed before the deadline.
The tax cut has caused house prices to rise, meaning that the overall cost of a property (purchase price plus stamp duty) may in many cases be approximately the same while the government has been deprived of billions of pounds of revenue. It is possible that re-introduction of the tax will help to relax the overinflated housing market.
A stamp duty holiday also benefits those who don’t need the assistance, namely the relatively well-off homeowners when the pandemic has disproportionately hurt lower-income households, particularly private renters.
If the stamp duty holiday isn’t extended or current transactions that started prior to 31st March 2021 aren’t honoured the stamp duty holiday many transactions could end up falling through! With the economy in its current state the government will be keen to avoid the property completion trap!
What are your thoughts on the possible stamp duty holiday extension and its affect on house prices? Comment below…