What are the benefits of the recently introduced Stamp Duty Land Tax holiday?

A temporary Stamp Duty Land Tax holiday could present an opportunity for those looking to buy or sell

Author: Jonathan Clements

26 August 2020

Stamp duty land tax (SDLT) is only one of many factors that influences decisions to buy or sell a home. However, the announcement on 8 July 2020 of a SDLT holiday until April 2021 on the first £500,000 paid for a main home in England or Northern Ireland should be greatly appreciated by people looking to move.

Since December 2014, SDLT has been calculated on residential transactions using a progressive slice system. This means that different rates and thresholds have been applied to the portion of the purchase price within each band. By way of comparison we also include the new temporary rates in Figure 1.

Table 1 illustrates old SDLT rates and the new holiday rates

Figure 1 illustrates old SDLT rates and the new holiday rates

Under the previous rates, the SDLT when buying a main home costing £500,000 was £15,000. An additional 3% SDLT over and above the usual rates also applies in respect of second homes and buy-to-lets, and to all acquisitions of UK residential property by companies and other non-natural persons. The SDLT cost of buying a £500,000 house where this applied was therefore £30,000.

The SDLT holiday has effectively increased the 0% band from £125,000 to £500,000, for transactions where the effective date falls within 8 July 2020 and 31 March 2021. The maximum stamp duty saving therefore applies for homes costing £500,000 or more and is £15,000.

Any buyers spending more than £125,000 will benefit. The chancellor has stated that an average buyer would save £4,500 and that 9 out of 10 buyers of their main home would pay no stamp duty. However, first time buyers, who have recently benefited from a stamp duty exemption for properties below £300,000 and a partial relief on purchases up to £500,000, have now lost their current competitive advantage.

Will this stimulate the market?

Buyers often spend the maximum amount they can afford, and this amount needs to cover both the price of the house and the SDLT charge. Consequently, buyers not paying a percentage of the property’s value to the government as stamp duty may have larger deposits and a better chance of securing a mortgage. In addition, the seller potentially benefits from receiving a higher amount from the buyer, and this may encourage more sellers into the market.

It is worth reiterating that the complete holiday from SDLT applies to the purchase of main homes only. The existing 3% additional dwelling supplement will continue to apply, although these purchasers will still benefit from an overall reduction in the SDLT payable. Furthermore, the previously announced additional 2% foreign buyers’ surcharge is still expected to be introduced from April 2021.

Bulk purchases of 6 or more properties will continue to be treated as non-residential and therefore subject to 5% SDLT. Alternatively, it will still be possible to claim Multiple Dwellings Relief (MDR) if this gives a better result. MDR reduces the SDLT by applying the SDLT rate by reference to the average unit price rather than the total consideration, subject to a minimum of 3%.

This SDLT holiday may directly boost the housing market and may also have a positive impact on the wider economy, indirectly benefiting a long list of related industries such as house builders, surveyors, conveyancers, estate agents, finance and insurance providers, house movers, and furniture and garden retailers.

Note that land in Scotland and Wales are not subject to SDLT and are instead taxed under the separate Scottish Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT) respectively. At the time of writing, both the Scottish and Welsh governments had announced similar transaction tax holidays for the first £250,000 of a residential acquisition.

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