Government cuts stamp duty on properties up to £500,000
Chancellor Rishi Sunak has announced a six-month stamp duty holiday to help boost the economy
Wed, 07/08/2020 – 15:05
The Government has brought forward plans to cut stamp duty after widespread criticism that it could bring the housing market grinding to a halt.
Chancellor Rishi Sunak announced in today’s summer statement that a stamp duty cut will be brought in immediately to help boost the economy.
It was initially reported that a stamp duty cut would not be rolled out until the autumn.
The scheme will run until 31 March 2021, the Chancellor said today, and the average homemover would save £4,500 on the tax.
However, property experts warned that announcing the cut but not implementing it until later in the year could freeze the housing market.
This is because buyers and sellers would most likely put off transactions until the stamp duty holiday is introduced.
Homebuyers currently pay stamp duty on properties worth more than £125,000, with a 3% rate on properties worth up to £250,000 and 5% on properties up to £675,000.
The new threshold is set at £500,000 and will remain in place for six months.
First-time buyers already get relief for the first £300,000 of stamp duty on properties worth up to £500,000.
Why is it being introduced?
When the lockdown was introduced in March, estate agents, buyers and surveyors were banned from visiting properties, freezing the housing market.
According to the Nationwide house price index for June, house prices fell by 1.4%, or £2,500, to an average £216,403.
Figures from HM Revenue and Customs show that 48,450 properties were sold in May, down nearly 50% compared to the same time last year when 96,050 homes were sold.
Demand for homes is expected to weaken further over summer and into autumn due to mortgage lenders pulling loans for first-time buyers and more people losing their jobs as the economy worsens.
The new rule means a majority of homebuyers will not have to pay any stamp duty at all.
Will it work?
The Institute of Fiscal Studies says there is a “good chance” that the plan cut stamp duty will be effective in the short term.
However, Sean Randall, a partner at tax and advisory firm Blick Rothenberg, says that based on the last temporary stamp duty cut in 2008, it is unlikely to work.
He says: “The last stamp duty holiday had mixed results. Studies showed that it increased transaction volumes by 8% but, significantly, the increase was offset by a substantial downturn when the holiday was withdrawn.
“This meant that it mostly made people bring forward completions. Studies also showed that buyers were only able to enjoy 60% of the tax break, with sellers sharing the rest by increasing prices.”
Randall questioned whether the cut was really needed as there is already first-time buyer relief for purchases up to £300,000, which is comfortably above the average house price in Britain.
“If the holiday takes effect as an increase in the nil-rate band, then everyone will benefit, including the wealthy and professional investors. But if it is hard-edged, like first-time buyer relief, meaning that a purchase £1 above £500,000 is taxed in full, then this will produce bunching at £500,000, the likes of which we have not seen since the abolition of the slab-system in 2014.”
Rightmove’s property expert Miles Shipside says: “Buyers in higher priced areas with bigger deposits would benefit most if the stamp duty threshold was raised to £500,000.
“There’s currently record housing demand but the market also needs the ability for lenders to extend the availability of low deposit mortgages, vital to healthy first-time buyer volumes that help drive the rest of the market.
“A stamp duty holiday without better mortgage availability isn’t really helpful for hard pressed potential first-time buyers who are already mainly exempt from it anyway.”