The Chancellor of the Exchequer, Rishi Sunak, has announced changes to give property-buyers a holiday from Stamp Duty Land Tax (SDLT) in an attempt to revitalise the UK economy.
Today, the chancellor announced changes to create a stamp duty holiday for house buyers and increased the current threshold for stamp duty from £125,000 to £500,000, as part of changes initially planned for the autumn budget.
Following leaked proposals earlier in the week, Rishi Sunak was forced to bring forward the stamp duty holiday changes for 2020, as concerns were raised that a stamp duty holiday beginning in autumn would stagnate the housing market in the meantime, with people opting to buy properties later in the year to benefit from the cut.
By temporarily increasing the threshold at which people have to start paying stamp duty, the government hopes that buyers will kick-start the housing market again after rapid losses during lockdown which led to a fall in house prices for the first time in eight years.
The plans are part of a wider initiative to support the economy. Other measures also announced include a temporary VAT cut for pubs, restaurants and cafes to help protect the hospitality industry and plans to offer £1,000 to companies for each apprentice they take on, in a bid to resist high levels of unemployment.
So what can be expect from the changes being made to stamp duty in the 2020 autumn budget?
Is stamp duty being cut in the UK?
Those looking to buy a new property will be pleased to hear that under the chancellor’s plans, the £125,000 threshold for stamp duty will increase to as much as £500,000. Speaking from the House of Commons, Rishi Sunak said, “I have decided today to cut stamp duty. Right now there is no stamp duty on transactions below £125,000. Today I am increasing the threshold to half a million pounds.”
While this means that the tax isn’t being totally removed, it does mean that you can buy a house for up to £500,000 without having to pay stamp duty at all. This would effectively boost the housing market, with conceivably more people looking to buy a house as stamp duty bills would fall by £4500 on average, with four out of 10 people buying a house not paying any stamp duty at all.
However, if you purchase a house over the £500,000 mark, then you will be liable for stamp duty on the property. To find out how much tax you could be paying, it’s best to use a stamp duty calculator.
What is the stamp duty threshold in the UK for 2020?
Stamp duty is calculated using rate bands, with the amount of tax you’ll have to pay varying depending on where your property falls within each band. Normally, the threshold to begin paying stamp duty is £125,000.
However under the changes coming into place from June 8, the threshold for stamp duty in the UK will be changed to £500,000 temporarily. As money expert Martin Lewis explained on Twitter, this would mean that “a £600,000 property pays 5% of £100,000 ie £5,000 rather than £20,000”.
How to work out stamp duty
There are online calculators you can use to figure out how much you’ll owe after you buy a property, or you can calculate it yourself using the tax bands below, which are relevant to the normal thresholds of stamp duty in the UK. While the bands and percentages remain the same, they are not relevant under the changes made by the chancellor on July 8, which will last until March 31 2021, as the starting threshold for paying stamp duty is £500,000.
- For the first £125,000 of the purchase price, you’ll pay no stamp duty.
- For the next £125,000 – the portion from £125,001 to £250,000 – you’ll pay a tax of 2%.
- For the next £675,000 – the portion from £250,001 to £925,000 – you’ll pay a tax of 5%.
- For the next £575,000 – the portion from £925,001 to £1.5 million – you’ll pay 10%.
- For the remaining amount – the portion above £1.5 million – you’ll pay 12%.
- For example, if your new home costs £275,000, you’ll pay £3,750.
That’s 0% on the first £125,000, 2% on the next £125,000, and 5% on the final £25,000.
Where to find a stamp duty calculator
To work out how much stamp duty you owe normally or under the new stamp duty holiday changes in 2020, you can either use a stamp duty calculator or work it out yourself. This stamp duty calculator, which can be found online, has also been modified to reflect the changes made this year.
Stamp duty is taxed under many different bands, as explained above, and is calculated on the price of the property, according to the MoneyAdviceService.co.uk. Normally for example, if the house costs £275,000 then the stamp duty tax would be zero per cent on the first £125,000 as this is the threshold, then two percent on the next £125,000 and five per cent on the last £125,000. This would bring the payable stamp duty to £3,750.
However, as noted, under the changes that are being proposed by the chancellor, there would be no stamp duty payable on a property worth £275,000.
When will the changes to stamp duty start?
According to The Times, the chancellor will finalise his plans to change stamp duty on Wednesday, with changes coming into immediate effect. The initial plan was for the increased threshold to start in the autumn, sometime around October, however the proposals were leaked and there was immediate criticism from industry professionals that waiting to put the changes into place would cause the market to shrink further in the meantime.
The announcement yesterday was well received by the housing market, who saw shares increase in house-building construction companies and estate agents like Foxtons and Purplebricks.
How long will changes to the stamp duty last?
From the House of Commons today, the chancellor spoke the limitations of the holiday. He revealed that the stamp duty holiday would continue until March 31 2021, superseding expectations that the changes to stamp duty would only go on for six months.
This follows months of losses for the housing market, who were affected during lockdown as people were encouraged to avoid moving house when possible. The restrictions were lifted in May, as viewings from estate agents and show homes were allowed to open once again.
Will first time buyers pay stamp duty in 2020?
Under the normal thresholds, if you’re looking to buy a home for the first time, then you will pay no Stamp Duty Land Tax on any property worth up to £300,000 – saving buyers £5,000. However, under the stamp duty changes in 2020, first time buyers would be eligible for a stamp duty holiday of up to £500,000 just like everyone else.
So while first time buyers still have to pay Stamp Duty, it’s not required for properties worth less than £300,000 or under the chancellor’s changes, on properties worth up to £500,000.
What is the stamp duty charge?
Stamp Duty Land Tax (SDLT) works as a one-off tax that applies each time you buy a new property – whether that’s a second home or you’re a first time buyer. Normally a solicitor will arrange the payment for you and you must pay it shortly after the date you complete the purchase of the property.
The tax applies whether you’re buying a freehold (you own the land) or a leasehold (the freeholder owns the land) property, and whether you’re paying for it up front or with a mortgage plan.
Before Rishi Sunak’s proposals, if were buying a residential property or land that costs over £125,000 in England, Wales or Northern Ireland, you have to pay stamp duty.
If you live in Scotland, you still pay a lump sum tax when you purchase a property. However, it’s called the Land and Buildings Transaction Tax and the main distinction between the two is that it uses different rate thresholds to determine how much you pay.
Who pays stamp duty – the buyer or seller?
When you’re looking to buy a property, stamp duty is one of the top things to consider as the law around who pays it is very specific. Many people believe that both parties will pay the property tax, but under UK law it is always the buyer who pays the stamp duty.
Most solicitors or conveyancers will arrange your stamp duty payment for you, although you can also do it yourself. Either way, the buyer is responsible for making sure the return is completed within the deadline to avoid a fine and the possibility of paying interest on the overdue payment.
Even if your new home costs under the threshold and you won’t be paying any stamp duty, you still need to file a return, unless the property costs less than £40,000.
When do you pay stamp duty on a house?
Unlike many of the other fees that need to paid before the final transaction for the house goes through, stamp duty is paid after the sale is complete. As of March 2019, buyers have 14 days to file their return and pay the stamp duty due.
The 14 days will begin from the date that the house purchase is finalised and if you don’t file your return and pay the tax in time, then the HMRC could charge you with penalties and interest.