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New stamp duty rules 2020

13 August 2020

New stamp duty rules

The Covid-19 pandemic has understandably taken its toll on the UK’s housing market. In response to this, some major changes have been introduced to stamp duty land tax – the tax payable when you buy a property, usually referred to simply as stamp duty. The changes are temporary, but they have already started to come into effect.

So what has changed? In a bid to boost the housing market and the economy, the government has decided to reduce, and for many, eliminate the stamp duty payable on purchasing a property. The temporary changes will mean that buyers can save thousands, even tens of thousands of pounds off the cost of a property purchase. It is estimated that 9 out of 10 home buyers will benefit.

What type of property is included in the reduced stamp duty scheme?

Stamp duty has been changed only for people buying residential property. Stamp duty will be payable as normal on commercial properties. In England, the lower threshold for paying duty on commercial properties is £150,000, with any value above this being subject to stamp duty.

How long will the new rates for stamp duty be in place?

The new stamp duty rules came into effect in England on 8th July and will be in place until 31st March 2021. In Wales changes are effective 27th July 2020 and will be in place until 31st March 2021.

Where do the temporary stamp duty rules apply?

The rules announced by the Chancellor, Rishi Sunak, apply to property purchases in England and Northern Ireland, but there are similar schemes for Wales and Scotland. Wales and Scotland no longer refer to the tax as stamp duty, but have their own versions known as Land Transaction Tax, and Land & Buildings Transaction Tax respectively.

Stamp Duty rates in England

Under the new rules the threshold for paying stamp duty has been raised, so there is now no stamp duty to pay on the purchase of a property costing up to £500,000.

As with the standard stamp duty system introduced in 2014, it is a progressive rate of tax. This means that different rates of tax are payable for each tier of the property price, rather than a single tax rate applying to the full cost of the property.

With the temporary rules in place, if you buy a property in England which costs over £500,000 you will not have to pay stamp duty on the first £500,000, but stamp duty is payable in incremental stages on the amount above.

Standard stamp duty is usually payable on the cost of a property above £125,000. The exception to this rule is for first time buyers, who are required to pay stamp duty only on the value over £300,000, where applicable.

Up to 31st March 2021, stamp duty is applied as follows:

Property Price Stamp duty payable

Up to £500,000 0%

£500,000+ to £925,000 5%

£925,000+ to £1,500,000 10%

£1,500,001 + 12%

Example

If you buy a property costing £675,000 in England stamp duty is payable as follows:

Purchase Price Breakdown

Stamp duty payable

First £500,000 0%

Next £175,000 5%

Under the new rates, £8,250 stamp duty is payable. By contrast, if the property were bought for the same price after 31st March 2021, the amount of stamp duty payable would total £23,750. So in this example, the saving on stamp duty would be £15,500.

Stamp duty rates from 1st April 2021

Property Price Stamp duty payable

Up to £125,000 0%

£125,001 to £250,000 2%

£250,001 to £925,000 5%

£925,001 to £1,500,000 10%

£1,500,001 + 12%

Land Transaction Tax rates in Wales

In Wales, there is no exception for first-time buyers under standard tax rules. Unlike in England where there is a higher tax threshold for people buying their first home, in Wales the standard rules apply to anyone purchasing a property which will be their main residence. This is no different under the temporary rules.

The standard and temporary rates for the Land Transaction Tax (LTT) in Wales are as follows.

Part of total property price

Standard rate Rate to 31st March 2021

See Welsh Revenue Authority LTT website for further information.

Up to £180,000 0% 0%

£180,000 up to £250,000 3.5%

£250,000 up to £400,000 5%

£400,000 up to £750,000 7.5%

£750,000 up to £1.5m 10%

£1.5m + 12%

How are property investors and second home buyers impacted by the change?

Under standard rules, people buying a second home, UK investors and overseas buyers all have a surcharge to pay on any property purchase.

The surcharge is payable in all the home nations – currently a progressive surcharge applies in England and Wales, starting at 3% for the basic rate.

This surcharge is still applicable, but the standard stamp duty is waived, as for any other buyer – so for properties in England below £500,000, or below £250,000 in Wales, there would be no duty fees other than the surcharge.

This means there is still duty to pay if the property you are buying will not be your main residence, but the amount is significantly reduced – offering investors the chance to make sizeable savings.

For example, in England until 31st March 2021 charges will apply as follows, where a property is being purchased as a second home or solely as an investment.

Property Price Stamp duty applicable to all Surcharge for investors

Up to £500,000 3%

£500,001 to £925,000 8%

£925,001 to £1,500,000 13%

£1,500,001 + 15%

Who will benefit from the new stamp duty rules?

It is estimated that 9 out of 10 home buyers will benefit from the relief on stamp duty. Clearly buyers will gain the most from the temporary reduction in stamp duty, but vendors stand to benefit too. With less or no stamp duty to pay, buyers potentially have more money available to put towards the purchase price. The stamp duty holiday is set to boost the housing market generally and increase interest from buyers. With more buyers competing for properties, it should be much easier for vendors to achieve their asking price, and to secure a quick sale. Use the HMRC SDLT Calculator to find out exactly what you would pay.

Exceptions to the new stamp duty rules

Student accommodation which is purpose built is not included in the scheme, so the temporary stamp duty rules do not apply for this type of property purchase.

Other conditions

In order to qualify for the scheme, the purchase must be made by 31st March 2021, and the process must have reached the stage where the stamp duty is paid before this date. Stamp duty is payable when the purchase transaction has reached completion and the buyer has taken possession of the property.

In England, you have 14 days from the point of completion to pay any applicable stamp duty. This period was reduced from 30 days in 2019. Failure to pay on time could result in a fine and interest charges may also be incurred on the amount owed, so it is important to pay promptly. In most cases, your solicitor will make arrangements for the stamp duty to be paid. However, legally it is the responsibility of the buyer so it is important that you check that the stamp duty payment has been made.

In Wales, you still have 30 days to pay Land Transaction Tax, and it is payable to the Welsh Revenue Authority (WRA). If you are paying by cheque, it must be received by the WRA at least 10 days before it is due, to allow time for processing.

Other points to note about the changes to stamp duty

If your property purchase had already been completed before the introduction of the new rules, unfortunately you are not eligible for the lower rate of stamp duty. However, if you have exchanged, but not completed, your purchase would qualify, provided it satisfies all other relevant criteria.

For anyone who is in a position to move or invest, now is the ideal opportunity to buy property. Overseas buyers have another factor to consider. There were already plans in place to increase the basic rate of stamp duty surcharge by 2%, from 3% to 5% for non-UK residents buying residential property in the UK. This change is due to come into effect from 1st April 2021. This makes purchasing property in the UK before the end of March 2021 an even more attractive proposition for buyers from overseas.

The stamp duty changes are a welcome boost to what might otherwise have been a stagnating market. Instead, we can expect to see increasing movement with a compelling incentive for buyers to take action now while the new measures are still in place.

Get in touch with one of our dedicated conveyancing solicitors today to see how we could help you through your property purchase or sale.