Amid a serious economic crisis caused by the coronavirus pandemic, the Chancellor of the Exchequer Rishi Sunak announced a temporary freeze on stamp duty taxes in early July 2020. For prospective real estate investors in England and Northern Ireland, the tax holiday, slated to run until the end of March 2021, is good news.
Typically, stamp duty is among the charges payable during the purchase of a property and is levied according to property price bands. Before the tax holiday, the duty was charged on property purchases above £125,000, or £300,000 for first-time buyers. With the announcement, the threshold for zero duty was raised to £500,000, effectively providing tax savings for potential buyers. Additionally, buyers of additional properties will also enjoy reduced rates during the tax holiday, starting at three percent for purchases up to £500,000.
This is not the first time a stamp duty holiday has been implemented. In 2008, the Chancellor suspended the tax for properties worth up to £175,000 for a year. The estimated cost of such a move was £600 million, highlighting the crisis’s severity then. According to property experts, the government’s decision to implement the holiday is a tested measure to boost property market activity.
Within the nine-month tax holiday, first-time buyers will be exempt from paying stamp duty tax on purchases up to £500,000, with more expensive properties only charged on the value above this amount. For some, the cost savings could be as much as £15,000. On average, the stamp duty bill will reduce by £4,500, meaning that close to nine out of ten people purchasing a home will not pay stamp duty.
For most people hoping to become property owners, the tax savings are an obvious benefit. However, the real boost to the industry is that buyers of expensive properties will save more on their purchases, even though homeowners might retain higher asking prices if they know the buyer does not have to pay stamp duty. Ultimately, the party that benefits most will likely be a factor of the negotiations between buyers and sellers.
Buyers looking for additional properties, such as investors in buy-to-let units, will be eligible for the tax cut but still pay an extra tax rate that starts at three percent on top of the standard stamp duty. While stamp duty is implemented on a tiered basis, the extra three percent is implemented as a slab tax. For example, an individual buying a home for £650,000 will pay £7,500 in stamp duty (zero percent for the first £500,000, five percent on the remaining £150,000) and £19,500 in the additional three percent tax.
Residential property investors such as Zuneth Sattar will likely enjoy the reduced stamp duty rates during the holiday, which is intended to breathe life into a housing market deeply affected by the pandemic.
Getting Deals Done
To benefit from the tax break, buyers whose purchases could take months to complete must get the process started early. While the government might consider an extension, it is best to aim to complete a transaction before the deadline, a process that can take several months. For many, this means ensuring a significant portion of the process is underway before Christmas 2020 if it is to complete before the 31st March 2021 deadline.
Buyers can take steps to speed up the process, including ensuring that every resource involved on their end is working at maximum capacity. Some aspects may not be in the buyer’s control (for example, local authority searches), but they can get solicitors ready and establish relationships with mortgage lenders. A buyer can also follow up with local councils on timelines, ensuring they have the right information as they get things going.