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September 15, 2020

The stamp duty holiday: Why now is an excellent time to buy property in the UK

We explain exactly why the UK stamp duty holiday is so attractive for investors

As in many property markets, lockdowns associated with the covid pandemic meant that transactions of homes and other properties in the UK slowed dramatically in April and into May. 

Accordingly, in response to calls for a “stamp duty holiday” to help revive and stimulate the housing, in early July, the UK government duly obliged. Temporary relief from the payment of stamp duty on property transactions has, therefore, been granted from July 8th, 2020 until March 31st, 2021.

Apart from giving potential buyers a significant tax break, the first expectation of the UK government is that it will encourage more people to move home.

The second expectation is that, as housing sales continue to pick up over the second half of the year, tax savings made by buyers will be reinvested in home improvements, white goods (fridges, washing machines etc.) and furniture. Which will also help stimulate the domestic consumer economy. Moving home also involves using other service providers and the buying of new goods, so, whether it’s for redecoration, buying additional furnishings or plants for the garden, this will all support the gradually reviving retail sector.

What are the numbers?

The threshold for stamp duty payable has been increased from £125,000 to £ 500,000 in England and Northern Ireland. The result of this means that some 90% of property transactions will no longer attract such duty. 

For those transactions still subject to the duty, the average amount of tax payable will fall by around £4,500. Some buyers in London and the South East may save almost £15,000 depending, of course, upon the value of the property they purchase.

Currently: Buyers pay stamp duty when buying a home or land in England and Northern Ireland with a value of £125,000 or more. The tax is charged on a tiered basis as follows:

  • Up to £125,000: 0%
  • £125,001 to £250,000: 2%
  • £250,001 to £925,000: 5%
  • £925,000 to £1.5m: 10%
  • Above £1.5m: 12%

There are exemptions available for first-time buyers, as this sub-set doesn’t need to pay stamp duty on the first £300,000; provided the home they’re buying is not worth more than £500,000. 

Temporarily revised rates:

  • Up to £500,000: 0%
  • £500,001 to £925,000: 5%
  • £925,001 to £1.5m: 10%
  •  Above £1.5m: 12%

Notwithstanding the above, people buying additional homes will need to pay an additional surcharge of 3% over and above the stamp duty levied on the first £500,000 of property value. However, this will still result in savings, as the 3% surcharge previously applied to the first £125,000, with higher rates above that.

Surcharge for non-UK residents and overseas buyers

Furthermore, and importantly for non-UK residents and overseas buyers, there is legislation before Parliament that, from April 1st, 2021, a 2% surcharge will apply to stamp duty rates for property bought by non-residents.

The surcharge will be in addition to the existing 3% higher rates surcharge which most foreigners already pay because they already own residential properties overseas. For overseas buyers, the top rate could, therefore, be 17% of the purchase price.

So, why is it a good time to buy property in the UK?

There are several excellent reasons to consider buying a property in the UK at this time:

  • The relief from paying stamp duty is not permanent, and the concession will expire in a little over 6-months; many buyers, especially first-time buyers, will seek to take advantage of this opportunity to get on or move up the “property ladder”;
  • A non-residents/overseas buyer’s stamp duty surcharge is likely to come into effect on April 1st, 2021 (see above);
  • There is a lot of positivity in the overall property market with demand still exceeding supply, plus the market has already factored in any negative news about the short-term economic outlook post-covid. Indeed, and perhaps most importantly, prices have been moving upwards over the last few months.

As evidence of this, it was reported in early September that UK property prices had hit record highs after their biggest monthly leap since 2016. According to a widely-followed house price index released by the largest lender Halifax, the average UK property sold for just over £245,000 in August.

That indicates a 1.6% increase in prices in July and 5.2% rise from a year earlier. Data from another well-known lender, Nationwide, showed prices rising 2% between July and August.

The surge in demand post-lockdown and the aforesaid temporary stamp duty holiday are driving growth. Plus, there is also significantly increased activity with the completion of previously delayed transactions, this is evident from data recently released by The Bank of England, which showed lending for new mortgages increasing by just over 66% between June and July. Approved mortgages for residential property purchases in July to totalled some 66,300, according to a comprehensive survey by the central bank.

Generally, the government is keen to continue to promote housing mobility and activity as this benefits the overall economy. Also, it appears that the end is finally in sight to the uncertainty regarding the long-running “Brexit saga” and attention can be focussed on the country’s economic well-being and growth.

So, if you are seriously considering buying a property in the UK, there is a window of opportunity which should be available at least until the end of the stamp duty holiday or before the new surcharge becomes effective. Unless, of course, prices continue to move ahead in the meantime—leaving some buyers ruing the decision not to act now!

If you would like to find out how to take advantage of the Stamp Duty holiday,
Contact us here
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Article by: Rory van den Berg