The Chancellor announced a temporary holiday on stamp duty in his summer mini budget to help revive the property market.  This blog explains what this means and how it works.

Previously, there was no stamp duty on transactions below £125,000 (or £300,000 for first-time buyers). Now, homebuyers will be temporarily exempt from paying the stamp duty tax for the first £500,000 of any property price.  This stamp duty holiday took effect on 8th July 2020 and will last until 31 March 2021.

The Chancellor is hoping that this measure will spark into life an ailing housing market in the wake of the COVID-19 outbreak and return it to its normal working state. If the property market is working properly, that has a massive impact on the rest of the economy.

 Who will benefit and what does this mean?

Stamp Duty Land Tax is a lump-sum tax that anyone buying a property or land costing more than a set amount must pay. This applies to buyers in England and Northern Ireland.

Homebuyers will not pay stamp duty on properties up to £500,000 until next April.

  • The Treasury says nine out of 10 people getting on or moving up the property ladder (or downsizing) this year will pay no stamp duty as a result.
  • First-time buyers, second-time buyers and older homeowners will all benefit. Even before lockdown, there was a clear stagnation in housing activity on those higher up the property ladder.
  • Extending the threshold for paying tax on a home in England and Northern Ireland to £500,000 frees up larger properties for growing families and enables the next generation of homebuyers to step onto or even up the ladder.
  • Buyers will make a significant tax saving, and this acts as a large incentive to keep all parts of the housing cycle moving in some of the most crucial summer months.
  • Overseas purchasers considering investing in UK property will benefit from buying now before the additional 2% Stamp Duty Land Tax charge for foreign residents comes into effect after 31 March 2021.

It is important to note that the 3% Stamp Duty surcharge still applies on top of the new stamp duty holiday rates, so people buying additional homes will attract a 3% stamp duty bill on the first £500,000 of property value.

How much will buyers save?

The maximum saving is up to £15,000, this means that anybody buying a property between now and the end of March for £500,000 or more will save £15,000.

How much a buyer in England or Northern Ireland could save under the temporary measure will depend on how much the property costs – as a general rule, the more expensive the property, the more you’ll save (up to the maximum of £500,000).

For example, if someone buys a property for £400,000 in England and  they are not a first-time buyer, they would usually pay £10,000 (made up of £2,500 on the portion between £125,001 and £250,000, and £7,500 on the portion between £250,001 and £400,000).

But for now, they would pay no stamp duty on the property at all – saving them £10,000.

Home movers who bought the average property for £248,000 would save £2,460 on stamp duty on the £500,000 stamp duty free threshold.

The Chancellor has said the average saving will be £4,500.

How will the stamp duty holiday help the wider economy?

The stamp duty changes are clearly positive and one of many ways used to abate against an economic slump. This change is not intended as a means to generate a property boom or restore the market to a pre-COVID state.

The stamp duty holiday encourages optimism, a reason to buy, a bolster against further falls and gives potential buyers an incentive to buy now and not later.

The approach to mitigating against this economic crisis is not mortgage-focused, or even property-focused; it is economy-wide.

Property Experts say that a stamp duty holiday will encourage more homeowners to move, helping to kickstart economic activity in other sectors.

The good news is that property portals have been reporting strong activity, with indications that there has been a further surge in property demand since the Chancellor announced the stamp duty tax break.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.