HOME buyers can now benefit from a stamp duty holiday as the Chancellor looks for ways to boost the economy.
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The tax-free stamp duty threshold has been raised to £500, 000 Credit: Getty Images – Getty
Stamp duty is a controversial tax that buyers usually pay when buying a piece of land or property over £125,000.
The rate then rises depending on the value and type of property – the more expensive it is, the higher the rate you have to pay.
Policy documents released say government will temporarily increase the Nil Rate Band of Residential SDLT, in England and Northern Ireland, from £125,000 to £500,000.
The tax holiday will apply from July 8, 2020, until March 31, 2021, and cut the payments due for everyone who would have paid stamp duty.
The government has said that nearly nine out of ten people getting on or moving up the property ladder will pay no SDLT at all.
Here’s how it will affect first-time buyers and second home purchases:
What is stamp duty?
STAMP duty land tax (SDLT) is a lump sum payment anyone buying a property or piece of land over a certain price has to pay.
Up until July 8, all house-buyers in England and Northern Ireland had to pay stamp duty on properties over £125,000.
The rate a buyer has to fork out varies depending on the price and type of property.
Rates are different depending on whether it is residential, a second home or buy-to-let, or whether you’re a first-time buyer.
The usual system in England for residential properties means:
- First-time buyers pay nothing on properties below £300,000 (and relief available on properties of up to £500,000)
- You pay nothing if the property costs below £125,000
- You pay 2 per cent if it is worth between £125,001 and £250,000
- You pay 5 per cent if between £250,001 and up to £925,000
- You pay 10 per cent if it is between £925,001 and £1.5million
- You pay 12 per cent on anything over £1.5million
For second homes or buy to let properties:
- 3 per cent on purchases up to 125,000
- 5 per cent on purchases between £125,001 and £250,000
- 8 per cent on purchases above £250,001 and £925,000
- 13 per cent on purchases above £925,001 and £1.5 million
- 15 per cent on purchases above £1.5 million
How will it affect first-time buyers?
First-time buyers are usually exempt from stamp duty on properties worth up to £300,000 and £450,000 in London.
They are then charged at a rate of 5 per cent on the portion of the value of the property between £300,000 but less than £500,000.
As the nil rate has been raised to £500,000, the changes affect those buying property worth more than £300,000 as they won’t have to pay tax on the portion that’s worth up to half a million pounds.
Those in London will see the tax-free threshold increase by another £50,000.
The average house costs £248,000 in England in March 2020, according to the Office for National Statistics (ONS).
If a first-time buyer bought a property for £500,000, they’d save £10,000 in stamp duty, Peter Gettins of mortgage broker L&C Mortgages, told the Sun.
How will it affect buying a second home and buy to let?
Second home owners and buy-to-let landlords will also benefit from the increased threshold of £500,000, but they will still have to pay a surcharge compared to ordinary home buyers.
Additional properties are taxed at higher rates of stamp duty – it’s three per cent on purchases up to £125,000, five per cent on the portion worth between £125,001 and £250,000 and eight per cent on costs between £250,001 and £925,000.
Chancellor Rishi Sunak has unveiled a host of new measures in this afternoon’s mini-budget
But many of these have not yet been updated, so you will have to work out your stamp duty manually for now.
How will it help the economy?
The Treasury hopes that the possible stamp duty holiday will reboot the property market after it effectively froze during lockdown with viewings, sales and moves suspended.
Experts say that a stamp duty holiday will encourage more home owners to move, helping to kickstart economic activity in other sectors.
What was announced in the mini-Budget?
CHANCELLOR Rishi Sunak has announced a £30billion “plan for jobs
The changes were announced in what’s been described as a “mini-Budget” following the coronavirus.
Here’s what the Chancellor announced:
Paul Johnson, director of the Institute for Fiscal Studies, told the Times there was a “good chance” that the policy would benefit the economy in the short term.
He said: “The housing market is very thin… Anything which gets it moving would potentially help”.
This was echoed by Tom Bill, head of UK residential research at estate agency Knight Frank, who told Financial Reporter: “A stamp duty holiday would provide welcome financial relief for millions of people, including first-time buyers.”