You Can Still Go On Holiday… A Stamp Duty Holiday

As part of the UK Government’s COVID-19 relief efforts, Chancellor Rishi Sunak has increased the threshold where Stamp Duty Land Tax (commonly known as Stamp Duty) is levied on property transactions. The threshold is now equal to or up to £500,000 in England and Northern Ireland.

This relief is only up until 31 March 2021.

What is stamp duty? How does this relief affect me? How can I benefit from this? In this week’s blog, we dive into the Chancellor’s Stamp Duty holiday.

What is Stamp Duty?

Stamp Duty refers to a tax that is levied when you buy a property in England and Northern Ireland that is over a certain price.

If you buy a property that is below or equal to the set threshold, you pay no Stamp Duty. Anything above the threshold, the relevant Stamp Duty rate will apply.

Notably, the Stamp Duty scheme is a ‘progressive’ tax system. This means that you don’t pay a single Stamp Duty rate on the entire property price. You may be charged one Stamp Duty rate (or not at all) for one portion of the property price and a different rate on another.</

The Chancellor’s latest announcement changes the threshold at which Stamp Duty is levied on residential properties. Instead of £125,000, the threshold is now £500,000. This means that if you buy a property which will be your main residence and is below or equal to £500,000, you will not be charged any Stamp Duty.

If this sounds confusing don’t worry. For different types of buyers, this means different things. We cover these below.

I’m a first-time buyer. How does this relief affect me? How can I benefit from this?

Previously, the old Stamp Duty rates for first-time buyers were:

Portion of Property Price Stamp Duty Rate
£0 – £300,000 0%
£300,001 – £500,000 5%

Note: If the property price exceeded £500,001 then the first-time buyer would have had to pay stamp duty at the old home mover rate (see moving home section).

This meant if you bought a property for £400,000 then you’d be charged two different rates of Stamp Duty:

  • Portion 1: £0 to £300,000 = 0% of £400,000 = £0
  • Portion 2: £300,001 to £400,000 = 5% of £100,000 = £5,000

Total Stamp Duty incurred: £5,000

Now, the 0% Stamp Duty threshold has increased to £500,000:

Portion of Property Price Stamp Duty Rate
£0 – £500,000 0%
£500,001 – £925,000 5%
£925,001 – £1,500,000 10%
£1,500,000 + 12%

This means if you buy a property for £600,000 then you’ll be charged two different rates of Stamp Duty:

  • Portion 1: £0 to £500,000 = 0% of £600,000 = £0
  • Portion 2: £500,001 to £925,000 = 5% of £100,000 = £5,000

Total Stamp Duty incurred: £5,000

I’m thinking of moving home. How does this relief affect me? How can I benefit from this?

Previously, the old Stamp Duty rates for those who bought a property that they were planning to live in and owned a property before were:

Portion of Property Price Stamp Duty Rate
£0 – £125,000 0%
£125,001 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1,500,000 10%
£1,500,000 + 12%

This meant if you bought a property for £600,000 then you’d be charged three different rates of Stamp Duty:

  • Portion 1: £0 to £125,000 = 0% of £600,000 = £0
  • Portion 2: £125,001 to £250,000 = 2% of £125,000 = £2,500
  • Portion 3: £250,001 to £925,000 = 5% of £350,000 = £17,500

Total Stamp Duty incurred: £20,000

Now, the 0% Stamp Duty threshold has increased to £500,000:

Portion of Property Price Stamp Duty Rate
£0 – £500,000 0%
£500,001 – £925,000 5%
£925,001 – £1,500,000 10%
£1,500,000 + 12%

This means if you buy a property for £600,000 then you’ll be charged two different rates of Stamp Duty:

  • Portion 1: £0 to £500,000 = 0% of £600,000 = £0
  • Portion 2: £500,001 to £925,000 = 5% of £100,000 = £5,000

Total Stamp Duty incurred: £5,000

I’m a landlord/buying a second home. How does this relief affect me? How can I benefit from this?

Previously, the old Stamp Duty rates for anyone who bought a second home/holiday home/buy-to-let property (a property that wouldn’t be your primary residence) were:

Portion of Property Price Stamp Duty Rate
£0 – £40,000
(if the total property price is £40,000 or less)
0%
£0 – £125,000 3%
£125,001 – £250.000 5%
£250,001 – £925,000 8%
£925,001 – £1,500,000 13%
£1,500,000 + 15%

Further, landlords and those buying a second home had to pay a 3% surcharge on each portion when buying an additional property that wasn’t a main residence.

This meant if you bought a property for £600,000 then you’d be charged three different rates of Stamp Duty:

  • Portion 1: £0 to £125,000 = 3% of £125,000 = £3,75
  • Portion 2: £125,001 to £250,000 = 5% of £125,000 = £6,250
  • Portion 3: £250,001 to £925,000 = 8% of £350,000 = £28,000

Total Stamp Duty incurred: £38,000

Now, with the 3% surcharge:

Portion of Property Price Stamp Duty Rate
£0 – £40,000
(if the total property price is £40,000 or less)
0%
£0 – £125,000 3%
£125,001 – £250.000 5%
£250,001 – £925,000 8%
£925,001 – £1,500,000 13%
£1,500,000 + 15%

This means if you buy a property for £600,000 then you’ll be charged two different rates of Stamp Duty:

  • Portion 1: £0 to £500,000 = 3% of £500,000 = £15,000
  • Portion 2: £500,001 to £925,000 = 8% of £100,000 = £8,000

Total Stamp Duty incurred: £23,000

Conclusion

The Stamp Duty holiday is designed to reignite the property market for all buyers. Landlords should pay particular attention to this threshold reduction. After years of rules and regulations that tightened the buy-to-let market, this hopes to bring landlords back.

Further, those wishing to buy their first home or upgrade to an expensive home now have the chance to do so, saving themselves thousands of pounds. But hurry, buyers have until 31 March 2021 to do so.

London and the South are known to be difficult for property buyers. Perhaps this will help change that.

Zain Khushi
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