September 23 2024
Former Chancellor Kwasi Kwarteng’s mini-budget announcement on September 23rd, included a cut to stamp duty. The cut, which could save some buyers more than £10,000, is the biggest tax reduction the UK has seen since 1972. Kwarteng stated the move would “support growth, increase confidence and help families aspiring to own their own home”.
While buying a home is one of life’s most exciting milestones, for many, the cost of stamp duty will add thousands to an already expensive purchase. But, there is some light at the end of the tunnel in the form of a stamp duty holiday. But, what is it? What does it mean for the UK housing market? And what does it mean for you? We explain all.
- What is stamp duty?
- What was the stamp duty holiday?
- What effect did the stamp duty holiday have on the housing market?
- What is the current stamp duty holiday, and how does it work?
- Why do we need a stamp duty holiday, and who will benefit the most?
- What effect will the stamp duty holiday have on the current and future housing market?
- What will be the wider effect of the stamp duty holiday?
- How much will I save?
- Stamp duty rates from 23 September 2022
- Stamp duty rates for first-time buyers from 23 September 2022
What is stamp duty?
Originally introduced in 1684 to raise government revenue, stamp duty land tax (SDLT) now applies to properties for sale that are located in England and Northern Ireland but only applies to houses over a certain threshold. Before the stamp duty holiday announcement, the SDLT threshold was originally £125,000 for residential properties and £150,000 for non-residential properties or land for sale.
What was the stamp duty holiday?
To boost the UK property market during the COVID-19 pandemic, the stamp duty holiday was introduced in July 2020 and extended until 30 June 2021. The exemption applied to buyers who completed a purchase before 1 July 2021 and on a property under £500,000. On properties costing more than £250,000, stamp duty was then applicable again between 1 July and 30 September 2021. Following this, stamp duty reverted to pre-holiday rates, starting at £125,000 as of 1 October 2021. As of 23rd September 2022, the thresholds were raised again, and as a result, it will lift approximately 200,000 homebuyers every year out of paying the tax.
What effect did the stamp duty holiday have on the housing market?
Inevitably, a wave of buying ensued due to the potential savings associated with the stamp duty holiday. In August and September 2020, house sales rose 15.6% and 21.3%, respectively, after the tax was introduced in July 2020. This temporary reduction also led to a rise in house prices in 2020, giving the property market a much-needed boost after a lockdown. Since then, house prices in the UK have continued to rise, and between June 2022 and July 2022, they increased by 15.5%. In July 2022, the UK’s average house price was £292,000, and the Office for National Statistics (ONS) reports this is the highest annual inflation rate in five years.
What is the latest stamp duty cut, and how does it work?
As part of the mini budget released on Friday, 23rd September ‘22, Former Chancellor Kwasi Kwarteng announced changes to stamp duty thresholds. Stamp duty will no longer be charged on the first £250,000 of a property’s price. Prior to this change, the threshold was £125,000, saving many buyers £2,500.
There was also good news for first-time buyers when the new Government also revealed that the additional stamp duty relief applicable to first-time buyers would also increase. They will not have to pay any stamp duty on the first £425,000 of a property’s price, previously it was £300,000, and also the maximum value on which first-time buyers’ relief can be claimed will rise from £500,000 to £625,000.
Why was stamp duty cut, and who will benefit the most?
Originally, the move was originally intended to help buyers who were struggling financially, boost the struggling housing economy, and speed up production in the industry due to so many people being furloughed or made redundant due to the covid pandemic. Fast forward to the new budget announcement, first-time homebuyers stand to gain significantly.
As stated by Former Chancellor Kwasi Kwarteng: “Cuts to stamp duty will get the housing market moving and support first-time buyers to put down roots.”
What effect will the stamp duty holiday have on the current and future housing market?
These stamp duty cuts reduce the cost of buying a home, particularly for first-time buyers; announcing the cut, Mr Kwarteng told MPs: ‘’The steps we’ve taken today mean that 200,000 more people will be taken out of paying stamp duty altogether.’’
This means that 33% of homes on the market are now completely exempt from stamp duty in England, compared to just 7% when the threshold was £125,000. It is an immediate permanent cut rather than just a holiday, as we have seen before, and will provide a boost to home buyers at a time when the cost of living is increasing. It may encourage people to move to bring more properties to the market. However, many experts are concerned that these cuts will simply fuel demand and push prices higher.
Rightmove property expert Tim Bannister says today’s announcement is likely to stimulate more demand from home-buyers. He says: “If the stamp duty cuts lead to a big jump in prospective buyers competing for the constrained number of properties for sale, then it could lead to some unseasonal price rises over the next few months. But because the change is permanent, and because of gathering headwinds such as rising mortgage rates, we expect to see a more gradual increase in demand compared with the surge when the temporary stamp duty holiday was announced in 2020.”
“With more buyer demand, we would also expect that the current trend of more properties coming to market will continue, offering more choice for buyers,” he adds.
What will be the wider effect of this change to stamp duty?
Cutting stamp duty will help get the economy moving and help taxpayers cope with the rising cost of living. The holiday will also impact other industries too, such as self storage, which provides the perfect opportunity to store household items during the process of moving. Similarly, the stamp duty cuts may mean that people currently living in rented accommodation might now be able to afford a house sooner, and so moving into a smaller property for a short period of time in order to save could be a great idea to take advantage of while you can. If you’re also downsizing to save money, why not speak to one of our experts and invest in a self storage unit until you’re ready to make your house purchase?
How much will I save?
The move is set to save the average homebuyer £2,500, while first-time buyers stand to save up to £8,750. Last year there were more than 500,000 homes sold, so the saving for the country is more than £1bn. However, following an increase in interest rates to 2.25%, a new 4% fixed rate deal for a mortgage of £250,000 will cost homeowners £3,840 more each year, equating to an extra £320 per month – far outweighing the benefit of the average savings of £2500 from the stamp duty cut.
Stamp duty rates from 23 September 2022
The changes below, which apply in England and Northern Ireland, are effective immediately. See the stamp duty calculator guide if you’re buying a property and want to work out exactly how much stamp duty you’ll need to pay.
|
Stamp duty rates (England & Northern Ireland) | ||
|
Property price |
Rate on a main residence (1) |
Rate for additional properties (2) |
|
Up to £250,000 – £425,000 for first-time buyers (3) |
0% |
3% |
|
£250,001 – £925,000 |
5% |
8% |
|
£925,001 – £1,500,000 |
10% |
13% |
|
£1,500,001 + |
12% |
15% |
(1) Rate applies to that portion of the purchase price.
(2) Additional properties bought for less than £40,000 will be charged the main residence rate of stamp duty.
(3) If the property you are buying costs more than £625,000, the £425,000 first-time buyer stamp duty threshold will not apply to you – you’ll pay the normal rate instead.
For properties you are buying as your primary residence, rates are as follows:
|
Property price |
Previous rate |
New stamp duty rate |
|
£250,000 |
£2,500 |
£0 |
|
£350,000 |
£7,500 |
£5,000 |
|
£450,000 |
£12,500 |
£10,000 |
|
£550,000 |
£17,500 |
£15,000 |
|
£650,000 |
£22,500 |
£20,000 |
Stamp duty rates for first-time buyers from 23 September 2022
The following rates will apply if you’re buying a home for the first time from 23 September 2022:
|
Property price |
Previous rate |
New stamp duty rate |
|
£250,000 |
£2,500 |
£0 |
|
£350,000 |
£7,500 |
£0 |
|
£450,000 |
£12,500 |
£1,500 |
|
£550,000 |
£17,500 |
£6,250 |
|
£650,000 |
£22,500 |
£11,250 |
If you’re looking for somewhere to store your belongings while you move, we can help. From the size of lockers to the equivalent of a double garage, our self storage units offer flexible solutions – whether you’re downsizing, decluttering your home in a bid to make it more attractive to buyers or refurbishing before you move in.
Get in touch with us now, or find your local self storage facility today; we even offer 24/7 access at most of our stores.
