For anyone who doesn’t know, stamp duty is paid by individuals purchasing properties – and while it varies slightly in different parts of the UK, it’s something that essentially anyone in this part of the world will have to pay. However, given the current circumstances, the tax threshold has been raised until next March in order to help buyers who are struggling due to COVID-19.
Anyone who is considering investing in the United Kingdom should learn about the changes that have been implemented, where they’re in effect and what it means for them.
How will things be different for investors?
Overall, the key to all the changes individuals are experiencing is the higher threshold. With stamp duty only being charged on property sales above £500,000 (at least until March 2021), anyone purchasing a residence lower than this amount won’t have to worry about the additional fee that’s been in place for many years now.
Changes are being implemented in Northern Ireland and England, and they’ve had an immediate effect.
The tariff has caused difficulties for many individuals in the past, since it can add quite a bit of cash to the transaction that many feel isn’t necessary. This only makes it a better time for investors to come in and save money on excellent opportunities – and even more beneficial for the people hoping to simply purchase a new home, but are struggling due to the current climate.
How much could you save?
The big question for many buyers is how much of a difference this holiday will actually make to their purchase. It’s estimated that the average charge will drop by about £4,500, with the majority of investors not needing to pay a single extra penny.
It’s typically calculated by the cost of the residence that’s being purchased. In the past, a £200,000 home would come with an additional fee of £1,500 (this was the lowest of the old rates), which only increases as the property prices go up. Before the break was introduced, a house selling for £400,000 for example would be charged with an extra £15,000. With the new rates, the additional cost is negated entirely.
Tax on more expensive properties
The good news is that, even for those purchasing more expensive buildings above the threshold, there’s still the opportunity to save. Most individuals purchasing a property with a price tag of more than £500,000 could save at least £15,000 (since this was the original stamp duty cost of houses this expensive), which is no small discount at all. At the moment, any residence over the threshold (£500,001) to £925,000 will be taxed at 5%. The next portion is £925,001 to £1.5 million, which will come with an additional 10%. Anything higher will have 12%.
A good example is properties costing £600,000. With the old rates, there would be an additional £20,000 to pay. With the new tax break, this has been reduced to just £5,000.
Reductions in other parts of the United Kingdom
The lower amount of tax is a huge benefit for anyone hoping to buy a property, but one of the main downsides is that the stamp duty holiday is only in England and Northern Ireland (although different measures have been put in place in other parts of the UK to help home buyers across the nation).
As mentioned earlier, stamp duty varies in different parts of the United Kingdom. For example, Scotland has Land and Buildings Transaction Tax (LBTT) instead, and Welsh buyers pay Land Transaction Tax. Overall, the amount of money that is charged can depend on where you’re buying, as well as the price of the property.
So, while the stamp duty changes will only apply in England and Northern Ireland, Scottish and Welsh buyers do have discounts of their own to help during these hard times.
With the current situation the market is in, the Scottish government have introduced a temporary cut to the tax on house buying, which will last until the 31st of March, 2021. With local prices and taxation, the new starting point for LBTT will be increased to £250,000 (where before, it was £145,000), which will save home buyers purchasing a property over the threshold around £2,000.
The new starting point for Land Transaction Tax is also £250,000, and will be in place for the same amount of time. This means that around 80% of house sales in Wales will be able to completely avoid having to pay the additional fee.
The recent changes that have been made across the United Kingdom are beneficial to practically anyone who’s planning on buying here – and while the amount that can be saved does vary, there is still a lot of cash that you could avoid having to pay.
What does the reduction mean for the market as a whole?
The main reason why the tax holiday was introduced was to help people who are struggling in the current climate to purchase homes – but it was also intended to try and boost the property market, as house prices have declined in recent months.
With such a large discount, it’s not hard to see why the stamp duty break has had an immediate effect on the market, allowing and encouraging more people to purchase properties while they have the chance to get a lower price.
Are there any disadvantages?
The only potential pitfall in all this is that far more people are likely to want to purchase a property before the break ends, so those who were planning on buying next year may end up rushing to take advantage of the discount before it’s no longer in effect.
This on its own isn’t a bad thing, after all it increases demand and gives more people the opportunity to buy when they may not have been able to otherwise. However, it could potentially lead to a drop in the market after the stamp duty holiday ceases – but this is just speculation on what might happen.