In a further move to help restart the UK economy, the chancellor of the Exchequer, Rishi Sunak, has announced a temporary hold on stamp duty for the first £500,000 of any main residence property purchase within England and Northern Ireland. The new policy comes into place with immediate effect and will last until March 2020. The move, which will cost the Treasury around £3.8bn, is designed to help buyers who may be struggling to afford the purchase of a new property in light of the coronavirus pandemic.
Stamp Duty is a tax paid by anyone who is buying a new property and although it varies slightly across the UK, it has essentially the same function. The temporary increase means that any properties with a total value below £500,000 will pay no stamp duty at all, with more expensive properties attracting tax only on the additional value above the threshold. This means that some buyers could save as much as £15,000 based on a property with a value of £500k or more, although it is thought that the average savings will be within the £4,000-£5,000 mark and that almost 90% of home buyers will avoid paying any stamp duty this year at all. Prior to lockdown, stamp duty was applicable on properties which were in excess of £125,000 in value. Those buying a property for the first time also enjoyed zero stamp duty rates providing their property was under £300,000.
The stamp duty holiday also applies to landlords and second home buyers, although they will still have to pay an additional 3% of stamp duty, as was the case previously. Property rental expert Gian Paolo Aliatis, believes this move could become a great incentive for people to invest in property and could help to attract foreign investment too.
“This move will help the rental market in London if this exemption applies to Buy-to-Let landlords who may now be willing to invest in London property; increasing the offer of rental property in the market while stabilizing or reducing prices.
Most of London’s young workforce will be priced out of London unless rental prices decrease at the same pace that income and salaries are expected to decrease in the near future. London property would still be considered a safe asset and the exemption of stamp duty may bring lots of foreign investment to London and the more rental property in the market the more affordable the market will become; increasing at the same time the disposable income of renters who will be increasing spending in the economy and reactivating it through consumption.
Another unknown is the impact that Covid-19 has had in terms of people moving out of London therefore this exemption together with the potential fact that thousands of people have moved out of the capital may create the perfect conditions for the rental market in London to become affordable and become competitive in relation to other cities in the western hemisphere.”
Whilst this seems like a positive move, some experts have warned that this could simply bring forward 2021’s house purchases, leading to an inevitable slump next year when the tax breaks end. There is also some frustration from those who have just completed a sale, as the breaks only apply from the 8th of July onwards, with calls that it should have been backdated to help out those who have literally just completed within the past couple of weeks. As stamp duty is one of the final payments to be made, as is made on the completion of the sale, those who have exchanged contracts but have not yet completed the sale will be able to benefit from the stamp duty holiday.
Other experts have highlighted the boost it will provide to all the sectors and businesses that support the property sector. Jamie Ward, head of stamp taxes at PwC said, “The stamp duty holiday might have a positive indirect impact on a long list of related industries, such as house builders, conveyancers, estate agents, finance and insurance providers, house movers and furniture and garden retailers.”
These mixed views are likely to remain for the duration; as is the case with any such arrangement, there are always going to be winners and losers. What is clear is that for the vast majority, the temporary removal of stamp duty will make moving just that little bit more affordable. This will particularly be the case for those who had already budgeted for their stamp duty payment, as they’ll now have to spend on home improvements or other items. It could even pay for them to have a little more time off work than planned to help make their new house a real home! What its impact on the property sector will be in the medium term remains to be seen.