Want to save money when buying a property? Time is running out!
Since the stamp duty holiday was introduced in July, the number of residential property sales has increased substantially (*) with many buyers saving thousands of pounds as a result but, with the holiday coming to an end in March 2021, could time be running out to benefit from it? Reeds Rains provides the answers:
What is the Stamp Duty?
Stamp Duty Land Tax (stamp duty) is the tax that has to be paid to HMRC when you buy a property and is usually organised by your solicitor, with the amount added to the overall costs of purchase. The amount of tax you’ll owe will depend on the price you pay for the property and is based on a banded system, with different portions of the property value liable to different levels of tax. There are exceptions, including for first time buyers (who are exempt from stamp duty up to certain levels) and investors who are subject to a higher levy. There are also different kinds of tax payable in Scotland and Wales.
What is the Stamp Duty Holiday?
The stamp duty holiday was introduced by the Chancellor in July 2020 to encourage buyers to purchase property. This was in an attempt to stimulate the market following the coronavirus lockdown. It means that, temporarily, there will be no tax payable where the value of the property is below £500,000 - although taxes will still apply for investors. The holiday runs out on 31 March 2021.
For properties purchased at above the £500,000 level, taxes will continue to be applied but only on the amount above that level, as detailed on the government website
As a buyer, is there a chance that I could benefit from the holiday?
Yes. If you complete the purchase before 31 March 2021, when the holiday ends, you could benefit. Before 8 July 2020 when the stamp duty holiday began, only properties under the value of £125,000 were exempt from the tax, with different percentages applying to amounts above this. A 5% tax would apply to properties valued between £250,001 and £925,000, for example.
As an example, if you bought a property at £300,000 you’d pay:
- £ 0,000 on the first £125,000,
- £ 2,500 (2% tax on the amount between £125,001 to £250,000)
- £ 2,500 (5% tax on the amount between £250,001 to £600,000 i.e. the £50,000)
£5,000 TOTAL (pre 8 July 2020)
Now NO tax would be payable – a saving of £5,000!.
As a seller, is there a chance that I could benefit from the holiday?
Yes. As we’ve already seen sales activity is high at the moment as more buyers flood the market in an attempt to take advantage of the stamp duty holiday. It’s a great time to place your property on the market to meet this demand and equally could benefit you, if you decide to buy.
Why is time running out – the holiday doesn’t end until March 2021?
Buyers have to complete their property purchase before 31 March 2021 to qualify for the exception. That means that the property has to be found, mortgage or remortgages secured, searches and surveys conducted and all paperwork completed to allow the keys to be handed over before that date. That’s a lot to do and can take, on average, 10-12 weeks to complete - and longer if any unexpected delays arise which might be out of your control.
Starting your search for a property as soon as possible, therefore, to take advantage of the stamp duty holiday is really important.
If you are buying a property: Take action now
- Book an appointment with a financial advisor to find out if you can secure a mortgage or remortgage and gain an understanding about how much you can afford to pay for a property
- Register with an estate agent to help you in finding a property as soon as possible – they may be able to let you know of properties as they come to market to increase your chance of securing one
- Check out the government website to understand the savings you could make and what tax, if any, you could still be liable for. We’ve also got a handy stamp duty calculator that may help you.
If you are selling your property: Take action now
- Book a valuation appointment today to find out how much your property might be worth and what buyer demand there is in your area
- Instruct an agent as soon as possible to ensure marketing can begin and completion is secured before 31 March 2021.
- Consider your next move and how you may benefit from the stamp duty holiday – as a buyer.
All in all the stamp duty holiday was introduced to support the housing market and the many buyers keen to make a move. Early indications have shown its working and already many buyers have made savings but, for others, time is running out to benefit. Act now, before it’s too late.
*Source: Rightmove House Price Index – 17 August 2020