Guest property writer, Karen Olney, talks about the impact of the upcoming stamp duty change.
Stamp Duty (SDLT) has had a lot of attention in the press recently. Paused at the beginning of the pandemic and slowly reintroduced in the last couple of months, it has sensationally boosted the housing market and has led many to argue for the eradication of stamp duty tax altogether.
But alas, from next month it is back to its pre-pandemic threshold. Subsequently, whether you are a first-time buyer or a seasoned property mover, stamp duty is likely to affect your next purchase.
Let’s take a look at what stamp duty is, some examples of cost and how you can prepare for it in an upcoming property purchase.
What is Stamp Duty?
Stamp duty tax (SDLT) is a tax charged by the Government when you purchase a home. The Government temporarily removed this tax in July 2020 for a first-time buyer purchasing a property under £500,000. A second homeowner had their fees reduced to a flat 3% under £500,000.
Below are examples for existing homeowners and those buying a second home.
Second time buyers
| Purchase Price | Previous Stamp duty | Stamp duty from Oct 1st |
| £100,000 | £0 | £0 |
| £200,000 | £0 | £1,500 |
| £300,000 | £0 | £5,000 |
| £400,000 | £0 | £10,000 |
| £500,000 | £0 | £15,000 |
Second homeowners
| Purchase Price | Previous Stamp duty | Stamp duty from Oct 1st |
| £100,000 | £3,000 | £3,000 |
| £200,000 | £6,000 | £7,500 |
| £300,000 | £9,000 | £14,000 |
| £400,000 | £12,000 | £22,000 |
| £500,000 | £15,000 | £30,000 |
From October 2021 this stands to change, and stamp duty tax will revert to its pre-pandemic charge.
Be prepared
Now that stamp duty is returning, it is important to be prepared when you offer on a property. Stamp duty tax can considerably push a house price up and can be dependent on readily available funds. Ensure that you have considered the below before making an offer on a property:
- That the stamp duty levy has been factored into the total cost, alongside a deposit and solicitor fees.
- Some mortgage lenders will allow you to add stamp duty to your mortgage. It is important to be aware that this can, in turn, considerably push up your mortgage repayments.
- Be mindful that SDLT is factored into the day of property completion. Considering the tax is returning in October, it is unlikely at this point you will avoid it.
- Online stamp duty calculators are a handy tool for determining how much SDLT will add to a property.
How will the reintroduction of SDLT affect the housing market?
The stamp duty reprieve witnessed a rapid surge in house sales and interest. In fact, the Office for National Statistics (ONS) June report stated that that the market witnessed the highest annual growth rate that the UK has seen since 2004. There is no doubt that the stamp duty holiday excelled at its job of sparking a property boom.
As the threshold reduces to £125,000 in October 2021, we can anticipate that the housing boom may come to an end and prices will begin to reduce. The latest July figures from ONS state that the average house price fell by £10,000 in July showing that it has already begun to have an impact. Nevertheless, it is impossible to ignore, that there is a high demand against a low supply of housing. This, combined with inflated costs of building materials, may mean the market remains steady.
Is it time for a change?
Some housing experts and MPs have pushed for years for an overhaul of stamp duty fees. They have argued that scrapping this tax will increase movement in a stagnant market, encouraging older homeowners to downsize into appropriate housing. As a result, this will free up suitable housing for families. In July 2020 a letter was sent to the Chancellor by top housing and pension bosses calling for the abolition of stamp duty tax for older generations.
More recently, Alexander Hammond from the Institute of Economic Affairs called for its removal claiming that it, ‘penalises people moving houses’.
Considering that stamp duty raises an estimated £11.6 billion a year, it is unlikely the government will want to relinquish this tax easily. But with increasing pressure from different parties, and as the Covid pandemic continues to play out, it will be an interesting topic to follow.
Karen Olney
Home and Property Writer