Stamp Duty Cuts: What This Means For You

Chancellor Rishi Sunak recently announced an immediate scrapping of stamp duty for properties under £500,000. This is said to benefit 9 out of 10 house-buyers, saving £4500 on the average purchase price.

Sunak announced these measures as a part of his recent mini-budget aimed at negating the economic impact of COVID. The decision to scrap stamp duty is designed to encourage property buying, as transactions decreased by 50% in May, and we saw the first decline in house prices in 8 years.

But, what does this mean for you? This article discusses what stamp duty is, and how this cut in stamp duty will affect first time buyers, remortgaging, second homes, and buy-to-lets.

What is Stamp Duty?

Stamp duty is a tax you have to pay when purchasing residential properties in England or Northern Ireland. If you’re in Scotland, it’s also a great time to buy (if you’re a first-time buyer) due to their newly launched First Home Fund.

The stamp duty system is similar to income tax, where it has different bands where you pay more depending on the value of the property.

You also have to pay extra if you are purchasing a second home.

You are exempt from stamp duty if the deed to the property is being transferred due to divorce or if it is gifted or left in a will.

Here is how stamp duty now works with the recent changes:

To give you an idea how to work this out for your property, here is another table showing the breakdown of how much needs to be paid for a property valued at £1.7 million:

Now you know what stamp duty is and how much you need to pay, it’s time to discuss how these changes affect your situation.

First-Time Buyers

Due to the decline in house prices and the stagnant property market, it’s a great time to purchase your first property. Nervous homeowners may be more willing to accept lower offers over fears they won’t be able to sell and will be sitting on a property whose value is declining.

Previously, first-time buyers gained a relief in stamp duty of £300,000 (for example, if you purchased a property for £350,000, you wouldn’t pay stamp duty on £300,000 of it, but you would pay 5% of £50,000). Under the new changes, first-time buyers won’t have to pay any stamp duty unless the property is valued over £500,000. That means if you were to buy a property for £350,000, you’d save yourself £2,500 of stamp duty.

If you’re unsure whether or not it’s the best time for you to buy your first home, I’d suggest speaking with a mortgage advisor. For a limited time, MortgageBud have waived their consultation fees, so if you’re looking for an experienced, trusted mortgage advisor, you can contact us.

Remortgages

Typically, you wouldn’t pay stamp duty when remortgaging, so these changes do not affect the majority of those remortgaging. There is an exception if you require to transfer the legal title of your home as a part of the transaction.

If you’re unsure if this applies to you, speak with your mortgage advisor or solicitor.

Buying a Second Home or Buy-to-Let

Second homes and buy-to-lets are treated the same when it comes to stamp duty. Both types of buyers will benefit from the stamp duty cuts, however, you’d still be required to pay the extra surcharge as it is not your first property.

The extra stamp duty required can be broken down as follows:

Whilst you still have to pay the extra surcharge, buyers will benefit from the reduced stamp duty and if the property is valued under £500,000, you will only need to pay the rates in the table above.

Also, those looking to purchase a second home or a buy-to-let will also benefit from the nervousness of homeowners who are looking to sell now rather than risk the value of the property declining in the post COVID recession.

Concluding Thoughts

Now is a great time to purchase a property. Most property buyers are likely to benefit from the cut in stamp duty, and the nervousness brought on by the prospect of the post-COVID recession means that there is a good chance you can get a great deal.

Many people who are looking to purchase property are holding off until the market stabilises, but those who are pushing forward are finding great deals and proving that now is a great time to purchase a property.

If you’re unsure how these changes to stamp duty affect you, or you have any other questions about mortgages or properties in general, be sure to contact us for a free consultation.