People buying property in the UK between now and 31 March 2021 could save thousands of pounds in tax. In July 2020, the Chancellor cut Stamp Duty to 0% for property purchases worth up to £500,000 in England and Northern Ireland. The Welsh Government has also announced that no Land Transaction Tax will be payable on homes worth up to £250,000 in Wales. A similar scheme has also been announced in Scotland. This means that buyers who would normally pay Stamp Duty could save up to £15,000 and buyers who would normally pay Land Transaction Tax could save up to £2,450.
Although the full tax break will only apply to first time buyers and home movers who own one home, buy-to-let landlords, investors and people looking for second homes could also receive a reduced tax bill.
Why has tax on residential property been cut?
It is estimated that around nine out of ten homebuyers will not pay any tax while the holiday is in place. It may seem almost too good to be true but the Governments have good incentive to encourage activity within the housing market.
With the arrival of the Coronavirus/Covid-19 pandemic in the UK and subsequent nationwide lockdown in March 2020, the housing market ground to a halt. Even once lockdown began to lift, conveyancing transactions could progress and home moves could go ahead again, people were understandably cautious about making such a huge purchase at such an uncertain time. However, if people do not continue to buy, house prices could fall, leading to a detrimental slump in the market.
The Stamp Duty and Land Transaction Tax holidays were therefore introduced to encourage people to buy and sell their homes now, rather than waiting for the Covid-19 crisis to pass. The measures have already caused a surge within the market, particularly within areas of Southern England where buyers are likely to see bigger savings due to house prices being higher on average.
Stamp Duty holiday – buying property in England
What is Stamp Duty?
Stamp Duty Land Tax, usually just referred to as Stamp Duty or SDLT, is a tax paid by a person buying property in England or Northern Ireland. It is only paid by the buyer, not the seller (unless the seller is also buying property). Stamp Duty is calculated at different rates depending the value of the property. These rates increase over the value of the property.
How does the Stamp Duty holiday work?
People who buy a property worth up to £500,000 which is to be their only residence won’t have to pay any Stamp Duty. After £500,000, Stamp Duty will be applied at the following rates:
- £500,001 to £925,000 – 5%
- £925,001 to £1.5 million – 10%
- Over £1.5 million – 12%
The following examples show how Stamp Duty is calculated:
Example 1: for a property worth £300,000 there is no Stamp Duty.
Example 2: for a property worth £600,000, the first £500,000 is tax-free and the last £100,000 attracts tax at a rate of 5%. The total Stamp Duty is £5,000.
Example 3: for a property worth £1.6 million, the first £500,000 is tax-free, the next £425,000 attracts tax at a rate of 5% (£21,250), the next £575,000 attracts tax at a rate of 10% (£57,500), and the final £100,000 attracts tax at a rate of 12% (£12,000). The total Stamp Duty is £90,750.
How will first time buyers be affected?
Before the Stamp Duty holiday was introduced, first time buyers already received tax relief on purchases up to £500,000. The first £300,000 would be tax-free and anything between £300,001 and £500,000 would be taxed at a rate of 5%.
With the Stamp Duty holiday, first time buyers will still save on tax. Those who buy property worth up to £300,000 will see no difference on what they could have saved. However, first time buyers who buy property over £300,000 will also receive a tax break on the portion up to £500,000.
How will people buying second homes be affected?
People buying additional properties such as buy-to-let investments, second homes and holiday homes worth more than £40,000 pay a higher rate of Stamp Duty of 3% over the basic rate. This means that, although higher rate payers will not be completely exempt from Stamp Duty (unless the value of the property falls below the tax-free threshold), most will benefit from a lower rate while the holiday is in place.
Land Transaction Tax holiday – buying property in Wales
What is Land Transaction Tax?
In Wales, tax on property is ‘devolved’ which means it is under the control of the Welsh Government. Instead of paying Stamp Duty like in England, people purchasing property in Wales pay Land Transaction Tax.
Land Transaction Tax is only paid by the buyer and is calculated according to the value of the property. The rates increase in bands as the value of the property increases.
How does the Land Transaction Tax holiday work?
People who buy residential property worth up to £250,000 which is to be their only residence won’t have to pay any Land Transaction Tax. After £250,000, the rates are:
- £250,001 to £400,000 – 5%
- £400,001 to £750,000 – 7.5%
- £750,001 to £1.5 million – 10%
- Over £1.5 million – 12%
The following examples show how Land Transaction Tax is calculated:
Example 1: for a property worth £150,000 there is no Land Transaction Tax.
Example 2: for a property worth £400,000, the first £250,000 is tax-free and the last £150,000 attracts tax at a rate of 5%. The total Land Transaction Tax is £7,500.
Example 3: for a property worth £1.5 million, the first £250,000 is tax-free, the next £150,000 attracts tax at a rate of 5% (£7,500), the next £350,000 attracts tax at a rate of 7.5% (£26,250), and the final £750,000 attracts tax at a rate of 10% (£75,000). The total Stamp Duty is £108,750.
How will first time buyers be affected?
Unlike in England, there is no tax relief for first time buyers in Wales. Therefore, first time buyers will receive the same benefits as other types of buyer.
How will people buying second homes be affected?
People buying additional properties such as buy-to-let investments, second homes and holiday homes pay a higher rate of Land Transaction Tax of 3% on top of the basic rates. However, it is 3% over the original rates, not the rates under the Land Transaction Tax holiday. The higher rates are:
- £0 to £180,000 – 3%
- £180,001 to £250,000 – 6.5%
- £250,001 to £400,000 – 8%
- £400,001 to £750,000 – 10.5%
- £750,001 to £1.5 million – 13%
- Over £1.5 million – 15%
You do not have to pay any Land Transaction Tax if the property is worth less than £40,000.
Do you need advice about buying a home in England or Wales?
Our residential conveyancing solicitors in Newport, South Wales regularly assist in transactions both sides of the border. As Law Society Conveyancing Quality Scheme accredited specialists, we are able to manage all types of transaction efficiently, accurately and with minimal stress. As part of our all-inclusive service, we will handle the Stamp Duty or Land Transaction Tax aspects of the transaction on your behalf, including ensuring the tax is paid correctly and filing the tax return with HMRC.
To get started or to request a quote, give us a call at our offices in Newport or fill in our simple online enquiry form and a member of our team will be in touch shortly.
