Unless you’ve been living on Mars, you will know that the stamp duty holiday introduced earlier in the year by Rishi Sunak has boosted the property sales market and you will know then when it comes to an end on the 31st of March next year there could be a major problem.
Two questions on a lot of peoples’ mind: will you be able to take advantage of the tax saving on property sales starting or going through right now, and will the benefit be extended post March 31st?
To answer the first question, you would expect a sale starting now would easily meet the deadline to complete the sale before the 31st of March – 3 months surely should be ample time. Not so say agents and solicitors who are dealing with these sales right now.
To take advantage of the stamp duty holiday you will find that, depending on the area in the country, some local authority searches are taking up to 16 weeks, which would put many a completion deadlined in jeopardy from today’s date.
What does the Stamp Duty Holiday mean to you?
Stamp Duty Land Transaction Tax (SDLT) normally applies on all properties over £125,000, or £300,000 for first-time buyers with an initial 3% surcharge if the purchase is a second home or investment property.
So, on 8 July 2020, Rishi Sunak the Chancellor of the Exchequer introduced a temporary stamp duty holiday which means that all sales below £500,000 (excepting the 2nd property surcharge) are exempt SDLT until 31 March 2021. In case you are wondering, yes the good news is that the stamp duty holiday does apply to second homes.
However, whilst in England and Northern Ireland you don’t pay stamp duty on a residence up to £500,000, Scotland and Wales took a different path and put the threshold at £250,000.
As an example, for a £600,000 main residence you will currently to pay £5,000 in Stamp Duty as a non-first time buyer. You pay no stamp duty on the first £500,000, 5% on £500,001 to £925,000, 10% on £925,001 to £1,500,000, and 12% above £1,500,000. Your effective stamp duty rate for that purchase at £600,000 is 0.83%. Without the relief you would have paid £20,000, so a saving of £15,000 and an effective rate of 3.33%.
The good news is that yes, the stamp duty holiday does apply to second homes but not the 2nd home surcharge. Anyone buying a 2nd property, such as a second home or a buy-to-let property, will have to pay the extra 3% in stamp duty on top of the revised rates for all properties priced above £40,000, and it goes up to 15% on a sliding scale in bands: £0 – £500,000 is at 3%, £500,001 to £925,000 it goes to 8%, £925,001 to £1.5m it jumps to 13%, and over £1.5m it’s 15%
It may already be too late to take advantages of the savings, given that buying a property is a complicated process involving several stages, with multiple parties involved, especially if there’s a chain – it could easily take 3 to 4 months at this time from an accepted offer to a completed sale, given the glut of sales currently going through.
What about an extension to the SDLT deadline?
Despite strong pleas for an extension the Government in England (Treasury) has stated that it “does not plan” to extend. Estate agents, surveyors and solicitors have been hoping that the chancellor Rishi Sunak would extend the deadline to avoid a “cliff edge” and a property slump. But so far no luck, however, a petition has been started and nearly 28,000 people have signed already.
The Treasury says it decided not to extend, so people now fear the market will collapse after 31st March, and in the meantime there’s a mad rush to get a quarter of a million property sales through, as buyers struggle to beat the deadline in a bogged down conveyancing process.
A call for the Scottish Government to take the lead and extend LBTT holiday
David Alexander, joint chief executive officer of apropos says:
“There is an opportunity for the First Minister to create a major difference for the people of Scotland and the housing market there by extending the deadline for the ending of the Land and Buildings Transaction Tax (LBTT) (Scotland’s stamp duty equivalent) holiday from 31st March to later in 2021.”
The lettings firm, apropos led by DJ Alexander is urging the Scottish Government to set an example to the rest of the UK by extending its stamp duty (LBTT) holiday beyond the current March 31st deadline. However, as The Treasury has already said, it has no plans to extend the deadline, Alexander is urgeing Nicola Sturgeon to “make a difference” in the Scottish property market by extending the tax holiday north of the Border.
“Scotland has been enjoying a boom in the property market since the lockdown began in March with average house prices rising by 6.8% between March and September from £151,285 to £161,510 which is much higher than the performance of the rest of the UK,” says Mr Alexander. He wants to see that continue.