On the 8th July 2020, Chancellor Rishi Sunak announced a stamp duty holiday. The logic was simple; the home buying process is hugely important to the national economy. Not only does it generate huge amounts of revenue for the government in Stamp Duty, but each home move triggers a chain of economic activity which helps people like movers, solicitors, utilities providers, architects and furniture makers pay their bills. Stamp duty holidays are a tried and tested method of shoring up faltering property markets.
This holiday is due to end on the 31st March 2021. We’ve seen its positive impact in the Snodland, Larkfield & West Malling property market first hand – it really is helping people. There’s no surprise when you look at the numbers. The average property price in Snodland, Larkfield & West Malling is £386,000. Before the holiday, buyers paid no tax on the first £125k, then 2% on the next part up to £250k then 5% up to £925k (then two bands above that). The change meant that no tax was payable on the first £500k, which meant the average home buyers saved £9,287. A fantastic amount of money to spend on a newly bought home.
This method of supporting the housing market has been successfully used before. Back in 2008, following the Credit crunch, then-Chancellor Alistair Darling suspended stamp duty for a year on properties worth up to £175,000, costing the exchequer £600m. To put the gravity of our current situation into perspective, this Covid Stamp Duty holiday will probably cost upwards of £1.3 billion, more than double.
So who in Snodland, Larkfield & West Malling has benefitted the most? Well, first time buyers are already exempt from stamp duty on homes costing up to £300,000. If the property is under £500,000 then no SDLT is payable on the first £300,000. Therefore, would-be home owners trying to get on the property ladder will see no particular benefit. However, the knock-on effect of existing home owners wanting to move may benefit them by releasing more purchase opportunities into the market. It’s buyers of more expensive properties that will end up saving the most. Some lucky buyers were able to save as much as £15,000, which is big money for anyone.
In theory it should be buyers who benefit from stamp duty holidays, since it is they who pay the tax. However, evidence from 2008 shows that sellers often became the main beneficiaries by keeping their asking price high, knowing the sellers have factored-in the saving to their budgets. This effect is more pronounced for higher value properties. Who ultimately benefits most may come down to how the deal plays out. Overall we suspect the saving usually ends up being shared fairly equally between the buyers and the sellers.
So what happens after the Stamp Duty holiday ends in March 2021? The plan, recently reconfirmed by the government, is that the thresholds return to their previous levels on all sales from the 1st April 2021 onwards. There could conceivably be a carefully-timed extension announced to help people who are in danger of falling off the ‘cliff edge’. These are movers who have agreed a sale but delays in the sales process put them in danger of missing out. A sudden increase in the tax burden on these people could cause entire chains to collapse. The conveyancing process is slow at the best of times, and lockdowns in the face of increased sales have not helped. Please get in touch today if you’d like us to guide you through your options.
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