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In a move designed to provide additional stimulus to the UK housing market, the Chancellor, Rishi Sunak, is expected to include in tomorrow’s mini-budget an immediate increase in the threshold for payment of Stamp Duty.
A buoyant housing market is seen by the government as crucial to its plans to kick-start the post-lockdown economy. Indeed, almost two months ago it was the first sector to be officially “reopened”.
What is Stamp Duty?
Stamp Duty is a tax payable when you purchase residential or commercial property over a certain price. Currently, the threshold at which it becomes payable for residential property is £125,000, increasing gradually with the value of the property. There are different rules for first time buyers purchasing property under £500,000. There are also specific rules for corporate bodies buying residential property with an increased level of stamp duty payable on an incremental basis. For everyone else, Stamp Duty is calculated as follows:
- on the first £125,000 – nil;
- on the next £125,000 (the portion from £125,001 to £250,000) – 2%;
- on the next £675,000 (the portion from £250,001 to £925,000) – 5%;
- on the next £575,000 (the portion from £925,001 to £1,500,000) – 10%;
- amounts above £1,500,000 – 12%.
The average house price in the UK in June was £237,616, which would currently attract Stamp Duty of £2,252. For a property purchased for £450,000, a purchaser would pay Stamp Duty of £12,500.
What change can we expect?
It is widely expected that the Chancellor will announce an increase in the Stamp Duty threshold from £125,000 to an amount somewhere between £300,000 and £500,000. The increase will only be temporary, probably for six months.
Delay would be counter-productive
While an increase in the threshold will come as no surprise, considerable concern has been raised that the move might be announced now, but its implementation delayed until the Autumn. However, such a move would invariably have an immediate freezing effect on the market as purchasers dragged their feet or delayed looking altogether, in order to save thousands of pounds in a few months’ time – exactly the opposite effect sought by the Chancellor.
Caroline Entwistle, Head of Property at BLB’s Bath office said “Over the last couple of months we’ve experienced a post-lockdown boom in residential conveyancing. For a number of reasons, lockdown really has focused people’s minds on moving home, and at the earliest opportunity. Clearly, that’s great for the economy and reducing Stamp Duty for the majority of purchasers will provide a huge further incentive. However, the market hates uncertainty and with all this speculation, it’s absolutely vital that the Chancellor either announce an immediate increase in the threshold, or rule it out conclusively.”