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How the Stamp Duty holiday works for homebuyers and landlords

A stamp duty land tax holiday has been announced by the Chancellor with immediate effect for homebuyers in England and Northern Ireland. The legislation will mean that buyers of homes valued up to £500,000 will no longer have to pay stamp duty on their purchases. Nicholas Green contributed to this article.

You can receive up to £175,000. Johnson’s government is now removing SDLT up to a £500,000 threshold, at a cost estimated at £1.3 billion to the Treasury. It is a demonstration of how severe the current crisis is. However, the current stamp duty holiday will not be quite as long. It will last approximately nine months and is tentatively scheduled to end on 31 June 2022. At this point, it is expected that Sunak will extend the lockdown until the end of June when the nation is expected to return to work after being in lockdown for two weeks.

Research & Insight Director Richard Donnell at property website Zoopla stated: “Stamp duty holidays are a tried-and-tested method for boosting housing market activity.”. “Stamp duty holidays will make almost nine out of ten sales taxable, compared to 16 percent now.”.

The Stamp Duty holiday is only for England and Northern Ireland

Due to the fact that the devolved administrations of Scotland and Wales are responsible for their own property taxes (Land & Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales), stamp duty can only be collected in England and Northern Ireland. As a result, only England and Northern Ireland will benefit from this stamp duty holiday.

As soon as a property transaction is completed, stamp duty becomes payable – typically within a couple of weeks – and is calculated according to the purchase price. Existing homeowners buying their next home could potentially save around £2,440 each by paying a 2% charge on properties between £125,000 and £250,000, which is equivalent to the average home in England selling for £247,000.

First-time buyers, however, are subject to different rates. Those purchasing their first home are already exempt from stamp duty if they make an acquisition of £300,000 or less, and if the purchase is less than £500,000 they pay no stamp duty on the first £300,000 of the purchase (anything above this amount is subject to tax). Due to this, the majority of individuals looking to get on the property ladder will not see any financial benefit from the stamp duty holiday. Hopefully, the benefit to owners will be that they are more willing to sell, since they may save money on their next purchase.

The Chancellor’s decision may inevitably result in millions of additional savings for buyers of more expensive properties.

Are buyers or sellers likely to benefit from the stamp duty holiday?

Those who pay stamp duty are those who benefit from stamp duty holidays in theory, since it is the buyers who benefit. However, the 2008 evidence suggests that homeowners are often the ones who pocket the extra money. An incentive for a homeowner to keep their asking price high can be knowing their buyer won’t have to pay stamp duty, especially for more expensive properties where stamp duty can amount to several tens of thousands of dollars. At the end, who benefits the most will depend on the negotiating skills of buyers and sellers. There’s a good chance the stamp duty savings will end up being split down the middle, with the sellers pocketing half of the savings.

Do buy-to-let properties and second homes qualify for the stamp duty holiday?

Those who plan to buy a second home or buy a buy-to-let property may have been disappointed by Rishi Sunak’s announcement. The additional stamp duty charge applies to all properties you buy other than your primary residence, whether a second home, a holiday home, or a buy-to-let. For the most expensive properties, the tax is 15%. The tax starts at 3% and increases in bands.

Leaving out additional properties in the stamp duty holiday is probably a wise political move on the part of the Chancellor, as it could be interpreted as disproportionately favoring landlords and those with multiple residences. However, buy-to-letters should welcome the measure as it stands as they will still be able to reduce their SDLT bill by more than a third in most cases.

There is no reason to be surprised if the buy-to-let market also gets boosted in a similar way to the homebuyer market. The Chancellor’s proposal to exempt most homebuyers from paying stamp duty as part of plans to kick-start Britain’s economic recovery is good news, says Mary-Anne Bowring, founder of lettings platform PlanetRent. There is no doubt that a stamp duty holiday would stimulate a rush of transactions and help breathe life into a housing market that has been put into a deep freeze due to the Coronavirus.

What will happen to the other stamp duty bands?

Otherwise, the stamp duty bands will remain unchanged. Therefore, the 2% stamp duty band will not apply for the duration of the holiday. Stamp duty will instead rise from 5% to 10% for the ‘slice’ between £500,000 and £925,000 and 10% for the ‘slice’ over £1.5 million.

Can you save money with the stamp duty holiday?

Simply put, the more expensive the property you’re buying, the higher the stamp duty – so the more you’ll save if you can buy it before 30 June 2022. Buyers could save the most if they purchased a property worth more than £500,000, which is the exemption threshold. This would attract a stamp duty of £15,000. But a canny seller will take advantage of this and negotiate the price accordingly, so in reality, the buyer ends up saving less than he or she would have otherwise saved.

What are the chances of extending the stamp duty holiday?

Some people who hope to benefit from the stamp duty holiday are concerned that it won’t last long enough for them to complete their home purchases. Conveyancing takes a very long time even under optimal conditions, and new lockdowns have not helped. Additionally, the holiday itself has caused a surge in demand, meaning that solicitors and estate agents are overwhelmed with business at a particularly challenging time.

In response, 14 trade organizations have called on the Chancellor to extend the stamp duty holiday. A ‘cliff edge’ will apply to transactions completed after 31 March, which means that no stamp duty cut will apply to transactions completed after this date. Depending on the prices that have been negotiated, this could suddenly make some purchases unaffordable for the buyers in question, therefore causing property chains to collapse. An adverse effect on the housing market would be something the government would like to avoid.

There are no plans to extend the stamp duty holiday, and it could be argued that its end would result in a cliff edge. There has been some suggestion that a phased or tapered approach might provide more security to homebuyers – for example, by allowing buyers to receive a stamp duty reduction if they have exchanged contracts but have not yet completed the transaction (since stamp duty is paid upon completion). Nevertheless, this is only speculation.

You might be able to beat the deadline by purchasing a property at auction. As we near June 2022, it appears that auctions will increasingly become a preferred option as they will take as little as a month.

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