Should the Stamp Duty holiday be extended? Or should the tax be scrapped altogether? Chancellor Rishi Sunak is facing calls from campaigners but it’s unlikely the Stamp Duty would be scrapped without an alternative.
Stamp Duty is a tax you may have to pay when purchasing a property. In most cases, first-time buyers are exempt from Stamp Duty. However, if you’re moving home or investing in property, it’s something you need to consider, as it can add thousands of pounds to the cost of buying a property. The amount of tax due will depend on the property’s value. Additional properties, such as a second home or buy-to-let property, have an extra 3% surcharge when purchasing.
As the property market struggled last summer, Rishi Sunak introduced a Stamp Duty holiday in a bid to encourage people to move and buy homes. It followed the market closing down during the first lockdown and meant people buying a main home for less than £500,000 wouldn’t need to pay Stamp Duty if the purchase was complete before 31 March 2021. Investors and those buying more expensive homes also benefited from reduced bills.
Statistics suggest the move worked; in the third quarter of 2020, property transactions were 72% higher than the previous three months. Average house prices also increased due to competition, reaching a record high £245,000 in September, according to the Office for National Statistics.
The chancellor is now facing calls from those that want to see the holiday extended as Covid-19 continues to affect the property market.
There is also a further petition to get rid of the tax completely. A petition organised by the Fairer Share campaign has been amassing support. The campaign argues that the Stamp Duty holiday has pushed up prices, making it more difficult than ever for aspiring homeowners to get on the property ladder. It suggests a flat-rate payment as an alternative.
According to statistics, stamp duties raised £15.1 billion in 2019/20, with Stamp Duty accounting for over three-quarters of the total, or £11.6 billion. Some £8.4 billion of this was generated from the sale of residential properties. At a time when the government needs to plug a financial black hole following the pandemic, an alternative to Stamp Duty would need to be in place if the tax were to be scrapped.
This is the suggestion Fairer Share is putting forward. The campaign argues that Stamp Duty should be rolled into Council Tax, with an annual payment that is linked to the value of the property. It says that this method would encourage people to move, as they wouldn’t face a significant bill when purchasing but would instead see higher outgoings they can incorporate into a budget.
The campaign suggests an annual charge of 0.48% of the property’s value. For a home worth £200,000, this would mean a bill of £960 per year. It also suggests a higher rate of 0.96% for those purchasing a second home or investing in the market.
With more than 100,000 signatures on the petition, it’s now a topic that MPs must debate. However, the move would have pros and cons. While it would remove the initial cost and barrier for homeowners that want to move, a regular outgoing linked to property value could see monthly expenses soar in some parts of the country. Those with homes in London or the south would likely see their Council Tax bill rise significantly if this were introduced.
While not replacing Stamp Duty, economist Gerard Lyons has suggested a shake-up to the current bands in a paper for thinktank Policy Exchange. Currently, first-time buyers purchasing a home worth up to £300,000 are exempt from Stamp Duty. Those purchasing a home worth up to £125,000 are also exempt. As house prices have increased, most property purchases are now liable for Stamp Duty.
Gerard Lyons suggests raising this threshold: “Ideally, Stamp Duty should be abolished, but as a first step it should [be] cut to zero permanently on lower-valued properties and reduced on higher-valued properties.”
Slowly phasing out Stamp Duty by increasing the thresholds could provide an alternative to completely removing the tax while the topic is still being debated. Again, there would be winners and losers with this option, with those in the south being the hardest hit.
If you plan to buy a property, make sure you consider the amount of Stamp Duty that will be due. Please contact us if you have any questions.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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