WITH REPORTS THAT a mini house-buying boom post lock-down is leading to house prices increasing, Shipleys Tax looks at one of the reasons for the mini-boom – the Stamp Duty cut. To increase confidence and gain momentum in the property market, the government cut stamp duty until 31 March 2021. In today’s tax note we look at how who benefits, and whether now is a good time to buy or sell a house.
The Stamp Duty Cut
From 8 July 2020 until 31 March 2021, residential Stamp Duty Land Tax (“SDLT”) threshold is increased from £125,000 to £500,000. Above £500,000 the normal residential rates as previously apply. SDLT applies to properties in England and Northern Ireland.
The rate of residential SDLT applying from 8 July 2020 to 31 March 2021 are as shown in the following table.
|Property value||Main home||Additional properties|
|Up to £500,000||Zero||3%|
|Next £425,000 (£500,001 to £925,000)||5%||8%|
|Next £575,000 (£925,001 to £1.5 million)||10%||13%|
|The remaining amount (over £1.5 million)||12%||15%|
Residential properties only
The increased threshold applies only to residential properties; the threshold for non-residential and mixed properties remains unchanged at £150,000.
For SDLT purposes a residential property is defined as:
- a building used or suitable for use as a dwelling, or is in the process of being constructed or adapted for use as a dwelling;
- the garden or grounds of such a building, including buildings of structures on such land;
- an interest or right over land that subsists for the benefit of such a building or land (for example, a right of way).
The test is at the effective date of the transaction.
Prior to the reduction, the non-residential and mixed rates were lower than the residential rates, so it was in HMRC’s interests for the property to be classed as a dwelling. Be aware what HMRC may consider to be a ‘dwelling’ may differ from what a lay person may regard as being suitable for use as dwelling. However, this approach may help the taxpayer to benefit from the lower residential rates applying until 31 March 2021.
A 3% supplement applies to second and subsequent residential properties. As this is applied to the reduced residential rates, those looking to buy a second home or an investment property in England or Northern Ireland will also benefit from the cut.
Winners and losers
Whilst the impact of the changes are yet to be felt, the overall impact of the SDLT cut is seemingly pushing up house prices to the extent that any stamp duty savings may not make a difference in reality. However, there are some winners.
Prior to the reduction, a higher threshold of £300,000 applied to first-time buyers, as long as the purchase price was not more than £500,000. While some first time buyers have lost their advantage, those paying less than £300,000 are unaffected by the reduction, but those buying residential properties costing more than £300,000 will benefit from the reduction.
On the surface the changes look like fantastic news for this group, especially in London where the average first home costs £415,000, meaning buyers are in line for a potential tax saving of £5,750.
However, most mortgage lenders will not currently lend more than 80 per cent of the purchase price, meaning the bulk of first-time buyers will need to stump up a 20 per cent deposit, rather than the 10 or five per cent required before the pandemic – a gap which may not be bridged by any stamp duty savings.
The most significant saving will be for home movers who previously would have had to pay stamp duty starting from £125,000. They could now save a maximum of £15,000 on a property costing £500,000 or more.
Properties that are both residential and non-residential (for example where there is both a residential and a business element) pay SDLT at the non-residential rates. This is usually beneficial but means such properties will not benefit from the temporary increase in the residential SDLT threshold.
Properties in Scotland and Wales
The residential threshold for land and buildings transaction tax in Scotland is increased 145,000 to £250,000 from 15 July 2020 until 31 March 2021 and the residential threshold for land transaction tax in Wales is increased from £180,000 to £250,000 from 27 July 2020 until 31 March 2021. However, unlike the rest of the UK, purchasers of additional properties in Wales do not benefit from the increase; the supplement is applied to the rates applying prior to 27 July 2020.
If you are thinking of buying or selling a house and you need help with Stamp Duty or Capital Gains Tax, call us on 0114 272 4984 or email firstname.lastname@example.org.