With the UK now, finally, moving out of lockdown, a lot of questions will inevitably be asked about it. Some will be largely academic while others will be purely practical. Arguably one of the most pressing questions of all is the question of how we cover the bill for the last few months. Could the Coronavirus result in higher taxes? It is hard to rule that out for the future, for the time being, however, the focus is on tax cuts, including a cut to stamp duty.
The new rules in brief
Technically, Stamp Duty has not been cut, the threshold to pay it has been raised from £125K (or £300K for first-time buyers) to 500K. This threshold applies to all buyers, but those buying a second or subsequent home will still have to pay the 3% Stamp Duty surcharge. The Stamp Duty holiday came into effect on the 8th of July and is scheduled to last until 21st March 2021.
For completeness, Stamp Duty only applies in England and NI. Scotland has Land and Buildings Transaction Tax and Wales has Land Transaction Tax. These both work along similar lines but they follow rules set down by the respective regional parliaments.
In principle, the “winners” are anyone who completes on a property during the period of the Stamp Duty holiday. In practice, while they might all be winners, some people will win more than others. For example, the discount for first-time buyers has now been absorbed into the general Stamp Duty holiday. This means that first-time buyers will be facing the same transaction costs as people who have already owned property and who have had a chance to build up equity in it, which they can put towards the purchase of a subsequent home.
It’s also worth noting that even with the 3% surcharge, the Stamp Duty holiday is good news for buy-to-let investors looking to expand their portfolios. This could make life more challenging for first-time buyers. That said, it could be good news for renters, only time will tell.
The Stamp Duty holiday might also benefit industries related to property. In addition to estate agents (and mortgage lenders), tradespeople might also see an upturn in business. Sellers might want their homes at least touched up before they put them on the market and buyers might want their new homes customized to their liking. Similarly, retailers which sell homewares might see improved sales as buyers, especially first-time buyers, furnish and decorate their properties.
You could argue that the only loser is the government, but the counterargument to this is that essential government spending has to be financed from somewhere. This means that the revenue lost through the Stamp Duty holiday (at least potentially) has to come from somewhere else.
In theory, it could come from the taxes paid by the various industry sectors which benefit from the move. In practice, it very much remains to be seen how much (if any) extra tax it will generate. If it doesn’t generate enough, then presumably there will have to be tax increases in other areas.
People who completed before the holiday may see themselves as losers. You could argue that they’re not, they’re just not winners, but that probably won’t be a great comfort to them. Similarly, people who can’t complete during the holiday period are also likely to see themselves as losers, especially if home prices increase.
In fact, if this Stamp Duty holiday results in home prices increasing sharply, then the group of losers could extend beyond those who are priced out of the market and come to include those people who see their council tax bills increase based on higher home values.
Your property may be repossessed if you do not keep up repayments on your mortgage.