Stamp Duty holiday: what does this mean for you?

The Stamp Duty Land Tax (‘SDLT’) holiday was announced on 8^th July 2020 to rejuvenate the property market. The holiday applies to residential property transactions by way of an increase in the first SDLT threshold from £125,000 to £500,000.

As this is the only holiday that some of us will experience this year, we have summarised the effect that the SDLT holiday may have on home movers, first-time buyers and property developers/ buy-to-let investors.  

The home mover

As previously stated, the holiday increases the SDLT payment threshold on all residential purchases from £125,000 to £500,000 if completion takes place between 8 July 2020 and 31 March 2021. The holiday may encourage homeowners to upsize and downsize dependant on their needs with the incentive being a maximum potential saving of £15,000.

The aim of the SDLT holiday is to increase the fluidity of the housing market and ultimately boost the economy during the COVID-19 pandemic, because a strong property market can create consumer confidence in other markets and boost economy-wide consumer expenditure.

Warning: the SDLT holiday does not apply to non-residential and mixed-use properties. Therefore, if you are planning on buying a property and just one room will be used for a non-residential purpose, you will not benefit from the increased SDLT threshold.

The first-time buyer

The holiday is not as beneficial for first-time buyers. Previously, first time-buyers paid 0% SDLT on the first £300,000 of their purchase, 5% on the amount between £301,000 and £500,000 and full taxation rules on the amount above £500,000.

Although the holiday will mean that first-time buyers do not have to pay the 5%, most leading lenders removed their 90% to 95% loan-to-value mortgage products in June 2020, meaning that first time buyers can only buy with a deposit of at least 15% in most cases.

Alongside the fact that the majority of first-time buyers were already exempt from SDLT as the average price paid for a first home in England is £220,000, the holiday does not provide much of an incentive for first time buyers.

Developers and buy-to-let investors

Although the SDLT holiday does not directly benefit housing developers, the hopeful rise in property purchases could create a need for new housing developments.

In England and Northern Ireland, landlords and individuals buying additional properties will still need to pay the 3% surcharge. Previously, a person buying an additional property of £500,000 would have had to pay 3% on the first £125,000, 5% on the next £125,000 and 7% on the remaining £250,000. This would result in an SDLT liability of £30,000. The SDLT holiday allows people buying additional properties to pay 3% on the whole £500,000 purchase, meaning that the SDLT liability would be £15,000, resulting in a saving of £15,000.

If you are interested in buying or selling a property, please call us on 01242 574244 and ask to speak to a member of our residential/ commercial conveyancing departments.