Stamp duty cuts on the way (Source: www.parkgrandkensington.co.uk)
According to several sources from Whitehall, Prime Minister Liz Truss’s government are due to announce a stamp duty cut on property purchases in their Friday mini budget announcement.
What Is Stamp Duty Tax?
For anyone who doesn’t know what stamp duty is, stamp duty is a tax on property purchases that the government charges. Currently, the rules are that stamp duty won’t be charged on first-time buyers purchasing a property up to a price of £300,000. If you purchase above £300,000 you will be charged a rate of 5% of the amount above £300,000. So for example, if you were a first time buyer purchasing at £300,000 you wouldn’t be liable to any tax. But if you purchased at £305,000 you would be charged 5% tax on the £5,000. That would work out at £250. This rule applies for first time buyer up until £925,000. If you purchase over £925,000 your tax liability will go up to 10%.
For people who aren’t a first time buyer (ever owned a property in their life) and will only own one property at a time, you won’t be charged stamp duty up until a purchase price of £125,000. From £125,001 to £250,000 purchase price, you would be charged a stamp duty rate of 2%. From £250,001 to £925,000 your stamp duty liability would be 5% and from £925,001 to £1,500,000 you would be charged 10%.
For anyone who owns one or more properties and are buying another property without selling anything i.e. expanding a property portfolio like a landlord or property investor, you will be charged an automatic stamp duty rate of 3% from a purchase price of £0 to £125,000. If you are buying from £125,001 to £250,000 you will be charged 5%. From £250,001 to £925,000 you will be charged 8% stamp duty and from £925,001 to £1,500,000 you will be liable to 13% stamp duty.
What Could A Stamp Duty Cut Mean?
During the early days of the COVID-19 pandemic, the then Chancellor of the Exchequer Rishi Sunak put a temporary pause on the stamp duty tax in an attempt to keep the housing market going and help people unable to afford expensive stamp duty liability. However, it seems that this break in the stamp duty tax only instigated the rapid rise in property prices that we are seeing now. As more people wanted to make the most of purchasing without stamp duty liability or a reduced stamp duty amount, the demand for property went up and property stock decreased.
Stamp duty receipts hit £10.6bn in the first eight months of 2022. The amount of tax paid when buying property is 39% (£3bn) higher than the same period in 2021. £1.6bn was paid by buyers in August alone, the second highest amount in any month on record.
The new Chancellor Kwasi Kwarteng is expected to announce either a stamp duty tax break or a reduction in a mini budget announcement this Friday which some see as a quick short term economic boost, but a lot of financial advisors think that the stamp duty tax will push up house prices again. For thousands of prospective buyers, first-time and second-time buyers, a stamp duty tax cut would be very welcome as saving a deposit alone can be tricky! Not having to pay a huge tax on a property will encourage a lot of buyers to return to the market.
However, if as predicted by some, property prices do rise even higher, it will only price out potential buyers even more and widen the market disparity. Leaving property purchases only achievable by wealthier buyers. All of this is speculation and we will have to wait until the budget is announced on Friday. Once we know the rules of the stamp duty cut, we can really start to analyse how this will impact buyers.
If you or anyone you know is concerned about stamp duty or being able to purchase a property, please feel free to give our helpful and knowledgeable advisor team a call today.
