The UK Stamp Duty Holiday Explained: Is now really the best time to buy?

First-time buyers could be tempted to buy their first property after the UK Government announced that Stamp Duty would not be applied to any first-time home purchase until the end of March next year.

If you are considering taking your first step onto the property ladder, it could be the perfect time to buy? Or is it…

What Is Stamp Duty?

One thing in life is certain – tax.

Stamp Duty is a type of taxation applied to property purchases. The amount paid depends on which UK country you are buying in and the amount you are paying for the property.

It has different names depending on the country. In Northern Island and England, it is called Stamp Duty Land Tax. Whereas in Wales it goes by the straightforward name of Land Transaction Tax, and the Scots throw in an extra couple of words, Land and Building Transaction Tax.

All of the Stamp Duty from property purchases in these countries will generate around £12 billion for HMRC each year.

It is not collected on homes that can be relocated, caravans and houseboats. It is also not paid when the deeds of a property transfer into other names and when no purchase was made. For example, if you inherited a property and the deeds switched to you. Although, it could then be subject to inheritance tax.

Why Are We Having a Stamp Duty Holiday?

The Stamp Duty holiday has been agreed because the UK Government wants to boost the property market. Property purchases became next to impossible during lockdown because lenders backtracked on mortgage agreements and refused to accept new applications.

The UK Government wants to help professionals and families continue with their home purchases after a likely drop in income over recent months. They see a Stamp Duty holiday as a way to get people buying again and inject activity back into the property market.

Further Details on the Stamp Duty Holiday

The Stamp Duty holiday will not apply to everyone. It will be available on property purchases in England and Northern Ireland only. Moreover, Stamp Duty has not been completely erased.

The threshold before you have to pay Stamp Duty has been increased to £500,000, which means anyone buying a property worth half a million pounds will pay no Stamp Duty. Buyers who are purchasing a property that costs more than £500,000 will only have to pay Stamp Duty on the amount exceeding £500,000 (not the full amount).

This change will be in place until 31 March 2021.

How Much Could First-Time Buyers Save?

The bottom line is expected to result in 90% of buyers paying no Stamp Duty – and the BBC has reported that the average Stamp Duty saving will be £4,500 per purchase. This will cost the UK Government just short of £4 billion.

To explain this with an example, let’s assume you bought a home in Bristol for £275,000. Without a Stamp Duty holiday, you would pay no tax on the first £125,000 and 2% tax between £125,000 and £250,000. The amount above £250,000 (in this case £25,000) will be subject to 5% Stamp Duty.

All added up, someone buying this home in Bristol would have to pay £3,750 Stamp Duty. That’s money well saved that you could spend on renovating a room or paying for a professional Bristol removals company.

The maximum possible saving from the scheme is £15,000.

So, Is Now Really a Great Time to Buy Your First Home?

The logic behind the Stamp Duty holiday makes perfect sense as more people will be interested in buying property when they can avoid paying the usual taxes.

But it doesn’t necessarily mean it may be the right time to buy your first home.

Some experts have warned that combining a limited number of homes for sale and a Stamp Duty holiday will lead to those willing to buy having to compete more fiercely to agree a deal.

Ultimately, this could mean that a Stamp Duty holiday drives up house prices and first-time buyers won’t really save anything. Even worse, they could end up paying more.

Who Could the Stamp Duty Holiday Be Good For?

However, it is not all scepticism surrounding the Stamp Duty holiday. Some other experts have identified the tax break as a good way for first-time buyers to own a buy-to-let property.

They believe the changes will appeal to young professionals and millennials wanting to buy a cheaper home and rent it out, while continuing to live in their more expensive urban playgrounds.

With remote working set to change future property demands, this could be a great way to invest.

What If Only One of You Is a First-Time Buyer?

The payment holiday is only available to first-time buyers buying a property in England and Northern Ireland.

If you are buying a property with someone who is a first-time buyer, but you are not, you will still need to pay the usual Stamp Duty tax rates.

What You Need to Be Careful of

If you are going to take advantage of the Stamp Duty holiday, there is one thing you almost certainly need to be careful of. The scheme lasts until 31 March 2021 and all purchases that are completed after this date will not benefit.

That means if you agree on a fee in January, but your purchase is held up and is finalised in April, you will have to pay Stamp Duty. A property purchase can take 15+ weeks to be finalised, so you should not leave it late to cash in on this tax break.

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