There have been stamp duty holidays in the past, but the latest one has come as part of Rishi Sunak’s plan to help boost the housing market after lockdown.
In this article, we’re going to be taking a look at everything you need to know about the stamp duty holiday 2020/21.
What is Stamp Duty?
Stamp Duty is a tax that you pay if you purchase a property that is valued over a certain amount. You pay this usually within two weeks of purchasing the property, and it depends on how much you pay for the property as to what slice you’re going to pay. For example, a 2% charge applies to property that was between £125,000 and £250,000. But, there are different bands for first-time buyers as well.
When it comes to first-time buyers, if the property is less than £300,000, they are already exempt from paying the stamp duty. Then, if the property is over £300,000 but under £500,000, they don’t pay stamp duty on the first £300,000.
How Will the Stamp Duty Holiday Work?
The stamp duty holiday works by not charging this extra tax when a person buys a property. Seeing as first-time buyers are exempt anyway unless they are buying a house over the price of £300,000, they aren’t going to see much difference. But, for people who are looking to move to a new home, they can now purchase this new property without having to pay the extra price of stamp duty on top. This holiday will last until March 2021, so anyone who is looking to make the most of this should do so before then.
How Much Could You Save?
It depends on the value of the property that you are going to buy. The more expensive the property is, the more stamp duty you would have had to pay on it. As such, the higher the value of the home, the more money you are going to save. However, there is a threshold for exemption.
If the property is over £500,000, you are no longer exempt from paying stamp duty. The stamp duty on a house of £500,000 is £15,000, so this is the maximum amount that you will be able to save through the stamp duty holiday.
Why has the Holiday been Introduced?
Due to the pandemic that we are facing right now, the housing market is not in good shape. There have been calls for the last few months to introduce a stamp duty holiday in the hopes that it will help give the housing market a boost.
The idea behind this holiday is that if you cut the tax on buying a new home, more people are inclined to do it. While the stamp duty holiday is going on, some people will be able to buy a new home cheaper.
While it is going to cost the government quite a substantial amount of money, the hope is that these ‘lost’ funds will be redirected back into other parts of the economy. It’s important to remember that when you are moving home, there are a lot of other things that need to be sorted as well. Finances and utilities will need to be worked out, and hiring movers, etc may help to start bringing the economy back up as a whole.
Who Will Benefit From the Stamp Duty Holiday?
People who are looking to get on the property ladder aren’t really going to benefit from this stamp duty holiday. However, homeowners who are looking to sell their home and buy a new one are the ones who will really benefit. This is because they know that they will be able to get their next home at a cheaper price while the holiday is in effect. Those people who are looking to buy more expensive homes are the ones who will come out on top here, as they are the ones who will benefit most from the stamp duty holiday.
As such, even those who are looking to get onto the property ladder benefit in some way, just not directly from the scheme. With more homeowners willing to sell their home, seeing as this is a good time for them, it means that there will be more options for them to consider on the market.
Will Buy-To-Let Property And Second Homes Be Included In The Stamp Duty Holiday?
No. Those who have second homes or purchase buy-to-let properties are not going to be included in the stamp duty holiday. This is so as not to favour those who have multiple properties such as landlords and the extremely wealthy.
Why Was Stamp Duty Put Into Place?
Stamp Duty was changed back in 2014 so that the way the tax was calculated changed quite dramatically. In 2009, the most expensive band for stamp duty was 4%, but now this is 12% and is set to rise to 15%.
The changes meant that those who were buying more expensive properties had to pay far more tax than ever before while cutting the tax on properties with a value of up to £940,000. This accounts for roughly 95% of households, meaning that the top 5% were the ones who were hit hardest by the changes made back in 2014.
One thing for sure though, is the break will be welcomed by many.
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