Stamp Duty Threshold Raised to £500,000

On Wednesday 8th July, Chancellor Rishi Sunak made his ‘Summer Economic Update’ announcement, laying out the Government’s plans to help the UK economy stay afloat in the wake of the Coronavirus pandemic. In a welcomed move, he set out temporary adjustments to the Stamp Duty Land Tax (SDLT) thresholds, which, as Steve Olejnik explains, is positive news for property investors.

Usually, the property price threshold at which individuals start paying stamp duty in England and Northern Ireland is £125,000. Sunak announced that it would immediately increase to £500,000 until 31st March 2021. This will come as a huge financial relief to many looking to purchase property over the next eight months.

Following announcements for England and Northern Ireland, Scotland and Wales have made temporary changes to their Land & Building Transaction Tax (LBTT) and Land Transaction Tax (LTT) respectively.

While the property market has been picking up since lockdown restrictions eased enough to allow physical valuations, this new change should certainly help continue to fuel recovery. Although some critics are sayings that it is likely to encourage those who were planning to move later in 2021 to bring their plans forward to take advantage of the tax break, potentially causing a slump in the property market once the stamp duty holiday is over.

Good news for remortgages
For anyone looking to remortgage over the next eight months, this is also good news. The stamp duty holiday will increase demand on purchases, meaning that property prices are likely to stabilise and continue rising; a huge relief for anyone concerned about going into negative equity in an unsteady market.

Temporary Stamp Duty Tax Rates (England & Northern Ireland):
Up to £500,000 0%
£500,000.01 - £925,000 5%
£925,000.01 - £1,500,000 10%
£1,500,000.01+ 12%

How much could this save you?
Home-movers
Currently, the average UK house price is just over £230,000, and as a first-time buyer, you wouldn’t pay any stamp duty on a property at this price. However, as a non-first-time buyer, you would be charged £2,100 in tax. Under the temporary stamp duty holiday, you would no longer have to pay this.

For those looking at properties which would normally attract a 5% stamp duty tax, this new measure offers considerable savings:

A £350,000 property would have you cost a total of £7,500 in stamp duty tax. You will now pay £0.
A £450,000 property would have cost you a total of £12,500 in stamp duty tax. You will now pay £0.

While stamp duty charges have not changed for properties over £500,000, if you’re purchasing property in these price brackets you will still benefit:

A £650,000 property would have cost you a total of £22,500 in stamp duty tax. You will now pay £7,500, saving £15,000! This is because you will only be charged 5% for the £150,000 above the new threshold.

Second Homes & Personally Owned Buy to Let
It’s not just home-movers who are set to benefit from this change! If you’re purchasing a second home or buy to let property (either personally or via a Limited Company), these changes apply to you too.

Before this change, purchasing a second residential property attracted a surcharge on the whole property price, in addition to standard stamp duty. Under these new reforms, only the surcharge is payable, which on properties up to £500,000 is 3%. This means that landlords will make, on average, a 40% saving on new investments during this time.

Again, this also means that if you’re purchasing a second home or buy to let property above £500,000, you will still pay considerably less tax. Potentially, this could open up the opportunity to consider higher-priced properties, which in turn can attract a higher rental income and therefore be a more profitable investment in the long-term.

Second Home Surcharge Rates:
Up to £500,000 3%
£500,000.01 - £925,000 8%
£925,000.01 - £1,500,000 13%
£1,500,000.01+ 15%

For example:
A £230,000 property would have cost a total of £9,000 in stamp duty tax. You will now save £2,100 (£6,900).
A £350,000 property would have cost a total of £18,000 in stamp duty tax. You will now save £7,500 (£10,500).
A £650,000 property would have cost a total of £49,500 in stamp duty tax. You will now save £15,000 (£34,500).

Scotland and Wales
Changes have also been announced for Scotland’s Land & Building Transaction Tax (LBTT) and Wales’ Land Transaction Tax (LTT) rates.

Scotland’s Temporary LBTT rates:
Up to £250,000 0%
£250,000 - £325,000 5%
£325,000 - £750,000 10%
Over £750,000 12%
These LBTT rates have been introduced from 15th July 2020 and will remain in place until 31st March 2021.

Wales Temporary LTT rates:
Up to £250,000 0%
£250,000 - £400,000 5%
£400,000 - £750,000 7.5%
£750,000 - £1,500,000 10%
Over £1,500,000 12%
These revised LTT rates come into action from 27th July 2020 and will remain in place until 31st March 2021.

Please note: The Welsh scheme only applies for first homes, and not for second homes or more properties. So for the vast majority of landlords, this saving will not be applicable for their buy to let, unless they do not own their own home and it is their first investment.

In addition to this stamp duty cut, Rishi Sunak also announced a new Green Homes Grant Scheme, offering vouchers of up to £5,000 for homeowners and landlords to make environmentally friendly changes to their properties. You can find out what we know about this scheme so far, here.

If this new announcement has ignited your property purchase plans, do get in touch with our expert consultants who will be able to guide you on your finance options: call 0345 345 6788 or email enquiry@mortgagesforbusiness.co.uk.

Article updated on 17/07/2020

 

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NB: ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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