What You Need To Know About Stamp Duty

First, can you explain exactly what stamp duty is?

“In the past, lots of legal documents required a specific physical stamp to be impressed on accompanying documents to show the tax had been paid. While a physical stamp isn't needed these days, when you purchase a property or land you may need to pay Stamp Duty Land Tax (SDLT), commonly referred to as just stamp duty. This is simply a tax imposed by the government on transactions in England and Northern Ireland, which is based on the purchase price.” – Charlotte Nixon, mortgage expert at Quilter 

What are the changes the government just announced? 

“It’s quite simple – house buyers will not have to pay stamp duty on property purchases of up to £500,000, but only temporarily, up until 31st March 2021.” – Charlotte 

Why did they do this?

“As we progress further through the coronavirus pandemic and the economic uncertainties start to bite, people may feel less inclined to make big financial decisions like buying a new house. The stamp duty cut makes it more attractive to people to buy a new house and therefore keeps the housing market moving.” – Charlotte

“After months of estate agents being closed and homebuying plans put on hold, it’s our belief that this announcement will help to boost more activity in the housing market.” – Tom Martin, mortgages director at The Halifax

Where do these changes apply?

“Stamp duty rates differ slightly across UK nations and the recently announced changes will only apply to buyers in England and Northern Ireland.” – Charlotte 

“The benefits will be felt across most of England, in particular the South East, South West and East Anglia, where the average house price will now fall under the revised stamp duty threshold.” – Tom

What were the rates pre-coronavirus and how has this changed?

“The amount of stamp duty you would've been required to pay prior to the announcement would depend on what type of buyer you were i.e. a first-time buyer, second home, buy to let or just a mover. For those who already owned their own home and were looking to move, stamp duty kicked in at 2% above £125,000, before rising to 5% above £250,000. For purchases between £925,001 and £1.5m buyers would be required to pay 10% stamp duty and finally any purchase over £1.5m required buyers to pay 12%. For landlords looking to rent out the purchased property or buyers buying a second home, the rates slightly differed. These buyers have to pay a surcharge of 3% on top of the regular stamp duty. For any purchase under £125,000 they would pay 3% stamp duty and are required to pay 5% for houses between £125,001 and £250,000 with the amount further rising depending on the price of the property. First-time buyers under the previous rules had less to pay and therefore are less likely to benefit from the recent changes. This type of buyer had a stamp duty exemption, meaning they did not pay the tax on purchases of up to £300,000 and 5% on the value of transactions between £300,000 and £500,000.” – Charlotte 

Is there any potential for more long term changes?

“The stamp duty exemptions will stay in place until the start of the next tax year at the end of March 2021. However, prior to the pandemic, Boris Johnson signalled he may choose to scrap stamp duty altogether for purchases under £500,000, so the rules could stay in place. That said, as we move out of the pandemic, the government will be looking for ways to pay for the significant packages put in place, so reinstating stamp duty for properties under £500,000 may be necessary.” – Charlotte 

Does stamp duty apply on exchange or completion? 

“Stamp duty should be paid within 14 days of completion of a new property purchase. If stamp duty is due, the purchaser must send a stamp duty tax return to HMRC and pay the tax within 14 days of completion. The recently announced changes haven’t altered this process.” – Charlotte 

How do you pay stamp duty?

“A solicitor or conveyancer will usually handle all the legal aspects of buying or selling a property including paying the stamp duty. It'll usually be added on to your bill following the purchase of the property. You can pay it yourself, but you will need to get in touch with HMRC and provide payment directly to them.” – Charlotte

So if you've already exchanged, are you still eligible for this reduction?

“The requirement to pay stamp duty is triggered as soon as you complete the purchase of the property. Therefore, if someone has exchanged before the new rules were put in place but hadn’t completed, they will benefit from the changes.” – Charlotte

“If you have completed a property purchase before 8th July you will have to pay the full normal stamp duty. Because it’s payable upon completion, if you've exchanged contracts and are  waiting for completion, you should be able to benefit from the change.” – Tom 

How will this affect first-time buyers?

“This will save first-time buyers 5% stamp duty on the value of transactions between £300,000 and £500,000. So, if they were to buy a property that costs £350,000, they would have paid 0% on £300,000, and then 5% on £50,000 over the threshold. Now, they will pay zero stamp duty on any property up to £500,000. However, as first-time buyers typically go for lower-priced properties, this cut is unlikely to benefit many, apart from those in London and the South East where properties are typically more expensive.” – Charlotte

“As we see homeowners looking to take advantage of the stamp duty cut, we are likely to see the rest of the housing market given a new lease of life, with first-time buyers able to access more properties freed up by current homeowners taking their second or third step on the ladder. First-time buyers looking to purchase in Greater London and the South East will also reap the benefits, as the average price for a first home in these areas will no longer come with stamp duty.” – Tom 

And second homes?

“The stamp duty cut is good news for those looking to buy a second home, as the rates already discussed are now cut completely for any purchase below £500,000. However, there is a 3% second home stamp duty surcharge that will still need to be paid.” – Charlotte

“For those already on the housing ladder and looking to purchase their next home, the announcement will make a big difference. With the average house price for current homeowners at £381,011 – they could save more than £9,000 on their next purchase. It’s important to remember, however, that landlords and people buying their second home are eligible for the tax cut – but they will still be liable for the extra 3% of stamp duty they would have been due to pay under the previous rules.” – Tom 

Do you think more properties will come onto the market?

“These changes are likely to increase the number of people deciding to take the plunge and move to a new house, so it is expected to increase the number of houses on the property market. However, it remains to be seen whether this is a short-term increase until the stamp duty exemption is reviewed in March 2021.” – Charlotte

“We have already seen a sharp rise in mortgage application calls since the lockdown measures were lifted, with a 100% increase in calls in June compared to May. We anticipate that this announcement will exacerbate this trend over the coming months and with more people moving, more people will be selling properties too.” – Tom 

Do you expect sellers to increase their prices?

“House prices often reflect the economic sentiment and demand in the market. Following the release of lockdown, there were reports of houses with gardens and home offices selling for more than their asking price as pent-up demand caused buyers to snap up anything they could. However, as we progress through the pandemic and various job saving schemes are reduced or removed, we may see rising levels of unemployment. In turn, this could mean people are forced to sell their homes as they can no longer meet their mortgage payments. This creates a situation where there are lots of homes for sale and few buyers, so to make properties more attractive and sell faster, house prices will be reduced. Whether house prices will continue to fall or whether they rise will ultimately depend on how the economy fares.” – Charlotte

For more information, visit Gov.uk