New Stamp Duty Rules: Winners & Losers
Rishi Sunak, Chancellor of the Exchequer, recently announced a new stamp duty tax break that will save the average UK house buyer around £4,500. The move is intended to revitalise the property market which has been consistently declining since the beginning of the pandemic. It is no secret that even property investors are nervous about the economic climate with all except the most brave and/or cash rich choosing to keep hold of their money. By increasing the threshold for stamp duty the Chancellor no doubt hopes the savings to be made is enough to attract property buyers.
First things first, what is stamp duty and what has changed?
What is stamp duty?
Stamp duty is a tax charged to most people purchasing property in the UK. Both England and Northern Ireland have a Stamp Duty Land Tax, and Wales pay a Land Transaction Tax, whereas Scotland is charged a Land and Buildings Transaction Tax.
The amount of tax owed by each person depends on a few variables, such as the sale price of the property and the property location inside the UK. Also, first home buyers in England and Northern Ireland are exempt from paying stamp duty for the first £300,000, whereas anyone buying a second home has to pay a surcharge of 3% in stamp duty.
What's the new law?
The chancellor announced there would be a holiday on stamp duty for all property sales up to £500,000 in Northern Ireland and England. These changes have come into effect immediately and will remain until March 31 in 2021. Use the stamp duty calculator to work out the costs.
Scotland and Northern Ireland have just this morning (15th of July) followed suit and issued a stamp duty holiday.
However, there have been some mixed reactions. Advocates have applauded the move agreeing that it will increase the number of purchase transactions. Critics have suggested it may encourage people originally buying a home next year to move their plans forward so they can take advantage of these savings. This could cause a reduction in demand after the tax break eventually comes to an end, causing another slump in the property market.
So, who will benefit the most from this tax break moving forward, and who is worse off?
Stamp duty savings winners
Estate agents and others who make their living off the property industry:
There has already been an increase in the number enquiries on both the seller and buyer side. As the number of completes increases, estate agents, surveyors, lawyers, mortgage brokers will begin making money again and can hopefully retain some staff. Others downstream such as moving and cleaning companies will also benefit.
Anyone with property to sell!:
Home movers and people downsizing are all the obvious winners in the coming months, as are any property buyers who already had deals in motion who unexpectedly had a windfall of thousands of pounds. Also, buyers who would have wanted to wait and see what the market brought might decide to buy now instead.
BLT landlords:
Mid-to-large portfolio landlords with healthy cash reserves may also decide to take the plunge and expand their portfolios.
Young first time buyers:
Young people are increasingly interested in buying larger homes rather than smaller apartments earlier in life than previous generations. There may now be able to afford slightly larger homes with the savings they make. However, this won’t be universal because they normally only pay 5% stamp duty between £300,000 and £500,000.
Stamp duty savings losers
Recent home buyers:
Some of the biggest losers here will be anyone who recently completed property purchases before the announcement. All they can really do is hope for is a future announcement approving backdating of the new stamp duty rules.
First-time buyers:
Because first-time buyers have lost their advantage of reduced stamp duty, homes they may have bought in future will likely be sold to landlords.
Tenants:
While an increase in available rental property is a win for tenants as there will be more properties available to rent throughout the UK, it's a double-edged sword as there will be more career landlords. Research has shown this group to be more likely to increase rents year on year.
Cash poor buyers:
With less stamp duty to pay, property buyers will have access to more money which will increase competition and drive up the prices. Unfortunately, this will likely make it much harder and more expensive for younger prospective buyers to get into the property game.
If you have any questions, get in touch with Husmus today.