Mini Budget – Changes to Stamp Duty
Katy Owen, Associate of Chartered Institute of Legal Executives, ACILEX | 23rd September 2022
The Basics
Stamp Duty is a tax payable by a purchaser when purchasing a property. The amount you pay depends on the purchase price of the property. Different rates are depending on if the property is residential, mixed-use, a second home, if you are buying as a company, if you are a non-UK resident, or if you are a first-time buyer.
A similar tax, called Land Transaction Tax, applies in Wales, and again the rates depend on the purchase price of the property and the circumstances, with higher rates applicable to Landlords.
Stamp Duty currently makes up around 2% of the tax collected annually in England.
Changes to the Rates
Today, the new Chancellor Kwasi Kwarteng has announced in the “mini-budget” that new rates of Stamp Duty are to come into effect as of 23rd September 2022.
Kwarteng is quoted as saying the tax cut is being introduced to “support growth, increase confidence and help families aspiring to own their own home”.
According to today’s announcement, no stamp duty will be paid on the first £250,000 of a property, and for first-time buyers, the threshold will be £425,000. The value of the property on which first-time buyers can claim relief has been increased to £625,000.
Kwarteng stated that these measures “will take more than 200,000 buyers out of paying for stamp duty altogether”.
The new standard rates for residential purchases by non-First Time Buyers are as follows
For a typical property in the South West, costing £338,000, first-time buyers will pay no tax at the new rates, as opposed to £1,900 under the previous rules. Standard rate purchasers would pay 5% on the portion above £250,000 meaning their liability would be £4,400 as opposed to £6,900 under the previous rates.
At this stage, we await clarification as to if the new levels will be reflected in the additional rates payable for second properties.
Stamp Duty Calculator
You can use the Government’s Stamp Duty Tax Calculator to find out how much you need to pay.
At this stage, the SDLT Calculator has not yet been updated to reflect today’s announcement.
What impact will these measures have?
The new rates are set to be permanent, as opposed to the short-term measures introduced during the Coronavirus lockdowns. Those measures resulted in a widely publicised housing boom and saw the average UK house price jump from £232,000 in May 2020 to £255,000 in May 2021. This in turn lead to rapidly escalating “bidding wars” between prospective buyers, as well as increased pressure on professionals in the housing sector and delayed transaction times. Rightmove reported in October 2021 that approximately one million households benefitted from the Stamp Duty Holiday.
The question as to if the new measures will stimulate the property market and increase growth is yet to be seen. Some critics have argued that the new rates will drive up property prices, in a stretched market that is already suffering from a lack of supply, especially of affordable housing stock for first-time buyers in desirable locations. Rightmove reported the amount of available stock on the market was down 39 per cent on 2019 levels as of August. Rachel Reeves, Shadow Chancellor, was quoted today as saying “Last time the government [cut stamp duty], a third of the people who benefited bought a second home or a buy-to-let property“.
However, the Government hopes that cutting stamp duty land tax will stimulate the housing market by encouraging people to buy property. Supporters of the measures say that cuts encourage growth by allowing more people, at all stages of life, to move home and this will in turn get more first-time buyers on the housing ladder. The increased “price cap” for properties being purchased by First Time Buyers eligible to claim First Time Buyers Relief is likely to benefit those looking to purchase in the most desirable locations. Any stamp duty tax cuts are likely to be welcomed by buyers as it would reduce the cost of moving home.
