Radical cuts to stamp duty are on the horizon as the nation awaits the first mini-budget since Liz Truss became Prime Minister. Click here for first time buyers conveyancing quotes
New Chancellor Kwasi Kwarteng will unveil new economic plans on Friday. The focus will be on stimulating growth and alleviating the pain of the cost of living crisis.Truss said in a press briefing in New York she was willing to take “difficult decisions” to drive economic growth. She didn’t however accept the argument that “cutting taxes is somehow unfair”.
She told Sky News:
“What we know is people on higher incomes generally pay more tax so when you reduce taxes there is often a disproportionate benefit because those people are paying more taxes in the first place”.
“We should be setting our tax policy on the basis of what is going to help our country become successful – what is going to deliver that economy that benefits everybody in our country.”
Truss is understood to believe that cutting stamp duty will stimulate the housing market and help first-time buyers get on the property ladder.
What Is Stamp Duty?
If you’re buying a home in England or Northern Ireland and paying more than £125,000, you will have to pay Stamp Duty Land Tax (SDLT) or more than £40,000 for second homes. This tax applies to both freehold and leasehold properties and whether you are buying outright or getting a mortgage. Read More HERE
If you’re buying a property in Scotland you will pay Land and Buildings Transaction Tax (LBTT) and Wales Land Transaction Tax (LTT) instead of Stamp Duty.
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There are several rate bands for Stamp Duty
The tax is calculated on the part of the property purchase price falling within each band. For example, if you buy a house for £275,000, the Stamp Duty Land Tax (SDLT) you owe is calculated as follows:
- 0% on the first £125,000 = £0
- 2% on the next £125,000 = £2,500
- 5% on the final £25,000 = £1,250
Total SDLT = £3,750
Government rates of Stamp Duty are, at first glance, fairly simple, although different types of ownership will incur their own unique charges. The most straightforward cost when moving home is for those residential buyers simply changing their only home. First-time buyers pay no SDLT up to £300,000 on their first house purchase. For others, there is currently no SDLT on the first £125,000 of a property. Between £125,001 and £250,000, a 2% tax is applied; 5% between £250,001 and £925,000; 10% between £925,001 and £1.5 million; and 12% on the value of a property beyond £1.5 million.
Rates are different depending on whether the property is residential, a second home or buy-to-let.
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How much will stamp duty be cut?
The current rates of stamp duty are as follows:
- £0-£125,000: 0%
- £125,001-£250,000: 2%
- £250,001-£925,000: 5%
- £925,001-£1.5m: 10%
- over £1.5m: 12%
The average stamp duty that a homebuyer pays is currently £8,258, based on the average asking price of £365,173, according to Rightmove.
It is unclear how much the Government is planning to cut stamp duty.
How Will Stamp Duty Cuts Affect Homeowners?
Initially, cutting stamp duty benefits people planning to buy houses. It means they pay less tax on their purchase, making the home more affordable. However, the proposition has been widely criticised by industry experts. They believe cutting stamp duty will push up house prices, and therefore increase mortgages.
Lewis Shaw, of Mansfield-based Shaw Financial Services, told The Guardian: “It’s bovine short-termism at its worst. This move will push house prices even higher, worsening inflation and further pricing first-time buyers out of homeownership”.
“If someone asked me how to drive an already overheated property market into dangerous bubble territory and make things worse for everyone, this policy would be it.”
The stamp duty holiday introduced by former chancellor Rishi Sunak during the pandemic saw the average UK house price jump by 15.5% annually in July. According to the Office for National Statistics (ONS) – the biggest increase in 19 years.
Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, told the Evening Standard: “You can see why the Government is concerned about the housing market, because there’s a risk that rising mortgage rates and rising prices will dampen buyer enthusiasm. We know from recent experience that a stamp duty holiday effectively stimulates demand.
“No buyer will ever complain about a tax cut, but if the Government was to cut stamp duty it would mean ignoring the fact that the real brake on the property market is a severe shortage of supply.
“Stimulating demand without addressing supply problems would risk more buyers chasing a tiny number of properties, which would push prices up. It’s what we saw during the coronavirus-inspired stamp duty holiday.”
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