On 8th July, the Chancellor of the Exchequer, Rishi Sunak, announced a new tax break on Stamp Duty.
Stamp Duty is charged to the majority of people purchasing a home in England and Northern Ireland.
This new tax break has temporarily loosened the rules on Stamp Duty, meaning that those buying properties worth £500,000 or less will pay no tax, whilst those purchasing more expensive homes will benefit from reduced costs.
This stamp duty holiday is now in affect and will until 31st March 2021, with the Chancellor stating that 9 in 10 buyers would no longer pay any stamp duty.
How will this affect property buyers in England and Northern Ireland?
First Time Buyers
First Time Buyers were already exempt from Stamp Duty on properties valued up to £300,000, however with this tax break this has increased to £500,000.
Current Homeowners
Prior to the Stamp Duty holiday, homeowners looking to move property would have had to pay Stamp Duty on their new purchase, however with the tax break they can expect considerable savings.
For example: a couple are selling their home and looking to purchase a property valued at £550,000. Whereas before the stamp duty holiday the full value of the property would have been liable, only the value above the £500,000 limit is now covered, in this case £50,000 at a rate of 5%. This means they would be only paying £2,500 in Stamp Duty.
Buy to Let / Second Property purchase
The Chancellor of the Exchequer has confirmed that Buy to Let purchases and second home purchases are eligible for this tax break. Previously, purchasing a property of this type meant paying a 3% surcharge on top of the Stamp Duty. Until the end of the tax break no Stamp Duty will be payable on properties up to £500,000 with just the 3% surcharge payable.
For example; the above couple are retaining their main residence and are purchasing a property to let out valued at £550,000. With the new tax break, they will be paying £19,000 in Stamp Duty. This breaks down at 3% on the first £500,000 (£15,000) and 8% on the £50,000 above this (£4,000).
Here is a helpful link to a tax calculator that can help you see how much Stamp Duty you could pay – https://www.moneyadviceservice.org.uk/en/tools/house-buying/stamp-duty-calculator
The rules for property transactions in Scotland and Wales have similar but separate tax regimes. In Scotland buyers must pay Land and Buildings Transaction Tax (LBTT) and in Wales they are subject to a Land Transaction Tax.
The Scottish Government has confirmed that it will offer a similar tax break to England and Northern Ireland. It plans to raise the starting threshold for LBTT for residential property transactions from £145,000 to £250,000. No launch date has been set for this, however once launched it will run until March 31, mirroring England and Northern Ireland.
Most buyers in Wales will not pay any property tax when making a purchase of up to £250,000. The Welsh Government has announced that it will also offer reduced rates until March 31.
Should you wish to take advantage of this tax break and wish to discuss this with one of our mortgage advisors, please do not hesitate to contact us on 01329 282882, or send a message to our Facebook page.
The value of tax benefits described depend on your individual circumstances. Tax rules can change.
Your home may be repossessed if you do not keep up repayment on your mortgage.
The Financial Conduct Authority does not regulate Buy to Let mortgages.