It has been widely reported that the Chancellor of the Exchequer, Rishi Sunak is likely to extend the Stamp Duty Land Tax (SDLT) holiday for a further three months. This will occur when he presents his budget on 3rd March 2021.
With the looming threat of over 200,000 current residential property transactions collapsing when the SDLT holiday ends on 31 March 2021, estate agents, solicitors, mortgage lenders, as well as buyers and sellers welcome the news of a possible extension.
Residential property solicitors in London are urging people not to make any financial commitments on the back of the reports that the SDLT holiday will be extended. One thing that the Coronavirus pandemic has taught us is that government promises and policies can swiftly change.
In this article, we explain what stamp duty is and why not extending the holiday poses a serious risk to the property market.
What is Stamp Duty?
If you buy land above a certain price threshold in England or Northern Ireland, either freehold or leasehold, you may have to pay SDLT. Scotland and Wales have different but equivalent taxes.
What is the Stamp Duty holiday?
During the first lockdown in March 2020, the residential property market virtually ground to a halt. To help it recover, Rishi Sunak introduced a SDLT holiday, waiving the tax on the first £500,000 of the property price.
SDLT over the first £500,000 is calculated as follows:
|Property Value||Stamp Duty Rate|
|£500,001 to £925,000||5%|
|£925,001 to £1.5 million||10%|
|above £1.5 million||12%|
The above applies to people who are purchasing a property that will be their only home.
If you are purchasing an additional home, the SDLT rates up until 31 March 2021 are as follows:
|Property Value||Stamp Duty Rate|
|Up to £500,000||Up to 3%|
|£500,001 to £925,000||8%|
|£925,001 to £1.5 million||13%|
|above £1.5 million||15%|
Why are residential property lawyers and estate agents so concerned about the end of the SDLT holiday?
There is pressure on the Treasury to extend the SDLT holiday in some form to avoid a ‘cliff-edge’ situation of thousands of house sales falling through because buyers cannot afford to pay normal stamp duty.
The time for a sale and purchase transaction to complete has become significantly longer due to the sheer number of house purchases and the fact that many organisations and businesses involved in real estate transactions have had staff off either sick or self-isolating.
Obtaining property searches is one of the main reasons for delays. In December 2020, around 8% of local authorities were reporting significant delays in returning searches with turnaround times for all of these local authorities exceeding 26 working days.
There have also been major delays in processing mortgage applications.
A stable property market is essential to the UK economy. Residential property represents the largest proportion of most people’s consumer wealth. The Bank of England puts it succinctly:
“The housing market is closely linked to consumer spending. When house prices go up, homeowners become better off and feel more confident. Some people will borrow more against the value of their home, either to spend on goods and services, renovate their house, supplement their pension, or pay off other debt.
When house prices go down, homeowners risk that their house will be worth less than their outstanding mortgage. People are therefore more likely to cut down on spending and hold off from making personal investments.”
Will the stamp duty holiday be extended?
The government has given no assurances that the SDLT holiday will be extended. And even if it is, it may not continue in its current form, as doing so would merely ‘kick the can down the road’, leaving the property market vulnerable to another ‘cliff-edge’ in June.
To mitigate the risk of the property market plummeting, the Treasury may extend the holiday only to those who have reached a certain stage in their residential property transaction, for example, agreeing with solicitors to exchange contracts. Alternatively, the tax relief available may be tapered down between March and June.
Either of the above scenarios will result in transactions becoming more complicated, and therefore, the Chancellor may decide on a blanket extension to the existing relief, taking a chance that the vaccine programme and easing of lockdown will boost confidence enough to ensure the market stays buoyant throughout the summer.
We will update you as soon as a decision is made. In the meantime, if you are concerned about your current house sale or purchase or want advice on how to take advantage of the SDLT holiday, please get in touch with a member of our conveyancing team today.
To make an appointment to discuss any aspect of residential property law please email or call us on 020 8349 0321.