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Many people will have been relieved by the Chancellor’s announcement in early March that the “Stamp Duty Holiday” will be extended to September 2021. There had been concerns that, had the previous deadline been kept in place, house prices across England might have suffered a fall – since many buyers caught in the deal logjam may suddenly have needed to pay thousands more to cover the stamp duty.
In this article, our financial planning and mortgage team offer some thoughts on how the new stamp duty holiday deadline could affect buyers, sellers and the wider property market. We hope you find these reflections helpful.
If you’d like to find out more or discuss your own financial plan with us, please contact our team for more information or to access personalised financial advice:
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Stamp duty holiday: a brief recap
The initial measure was introduced by Chancellor Rishi Sunak in July 2020. At the time, the UK housing market was at a near standstill following months of severe lockdown to try and contain the spread of COVID-19. To incentivise people to go out and buy, the government removed any requirement that buyers pay stamp duty on the first £500,000 of a property’s value (previously £125,000). This offered many people a hue tax saving.
To take an example, suppose you wanted to buy a home worth £600,000. Under normal rules (e.g. in early 2020), this could lead to a stamp duty bill of £20,000; i.e. 2% on the first £125,001 – £250k, and then 5% on the rest between £250,001 – £925k). At the time of writing, however, in March 2021 the amount payable will likely be £5,000, assuming the sale is completed before the 30th June. This is because a flat 5% applies to this property value (£500,001 – £925k).
For higher-value properties, there is still a big tax saving to be made under the stamp holiday rules – albeit smaller than those nearer to £500,000. An £800,000 property, for instance, would cost £15,000 in stamp duty before 30th June (instead of £30,000 in “normal times”) whilst a £1.5m property would require £78,750 to be paid (rather than £93,750).
The 2021 gradual threshold rise
The reasoning behind the stamp duty holiday extension seems partly due to the government not fullying appreciating how much of a “deal logjam” might be happening by March 2021. To help avoid a property market “crash” (due to thousands of buyers pulling out), the extension until the 30th June allows “breathing space” for these deals to close. After that, the threshold for stamp duty will be gradually lowered to £250,000 until the end of September. From the 1st October, the “old” threshold of £125,000 will return.
The government’s goal to stabilise the property market seems to have worked – for now. Up to March 2021, many analysts had predicted a fall in house prices as the stamp duty holiday drew to a close. Yet this has failed to materialise so far. Pundits and agencies are widely expecting UK house prices to gradually rise in 2021 (although, of course, this outcome is not guaranteed). Only time will tell, of course, how the gradual return to the original stamp duty threshold later in 2021 will affect the market.
Implications for buyers & sellers
Your decision to buy/sell your home is, naturally, a very personal decision. The merits and timing of doing so will vary depending on your financial goals and situation. However, due to the new stamp duty holiday dates that have been published in 2021, there are good reasons to consider speaking to your mortgage adviser sooner rather than later (if you are considering a move later in the year). Leaving things until July or August, for instance, may leave buyers vulnerable to a rise in their stamp duty bill should there still be a big deal jogjam at the time, which seems likely to expect. Bear in mind, however, that the backlog is still very high even as we write this article. Even those who have agreed to buy a property in March 2021 could still be waiting until June 2021 for the deal to finish. However, there is still a chance that it could go through before then.
UK property sales and prices are at record levels. This is good for sellers, and the stamp duty holiday adds incentives to buyers. It is perhaps not so good for first time buyers, although the government has tried to throw a line to this group by guaranteeing 5% deposits on mortgages worth up to £600,000.
About 230,000 buyers were expected to miss out on the tax saving offered by the original March 2021 stamp duty holiday deadline. Now, these people have more time to benefit as they hope for their deals to close by June. New buyers, moreover, should consider speaking to a mortgage adviser sooner, rather than later, if they hope to benefit before the 1st October.
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