Stamp duty holiday explained...

The Chancellor has announced that from 8 July, the stamp duty threshold will be temporarily raised from £125,000 to £500,000

The Chancellor Rishi Sunak has confirmed a major stamp duty cut in a bid to boost the housing market.

Speaking at the summer economic update, Sunak revealed plans to raise the stamp duty threshold from £125,000 to £500,000 in England and Northern Ireland.

The stamp duty holiday will start immediately and run until 31 March 2021.

It means that nearly nine out of 10 transactions will no longer be subject to stamp duty.

What is stamp duty?

Buyers must pay stamp duty when buying a home or piece of and worth £125,000 or more in England and Northern Ireland. It is charged on a tiered basis (so you only pay the higher rates on the slice above any threshold – the same as income tax).

These are the rates:

Up to £125,000: 0%

On the portion from £125,001 to £250,000: 2%

On the portion from £250,001 to £925,000: 5%

On the portion from £925,000 to £1.5m: 10%

Above £1.5m: 12%

There are exemptions available for first-time buyers, who don’t have to pay stamp duty on the first £300,000, so long as the home doesn’t cost more than £500,000.

These are the new holiday rates:

Up to £500,000: 0%

On the portion from £500,001 to £925,000: 5%

On the portion from £925,001

to £1.5m: 10%

Above £1.5m: 12%

The 3% stamp duty surcharge will apply on top of the new holiday rates, so people buying additional homes will attract a 3% stamp duty bill on the first £500,000 of property.

This will still result in a saving, because the 3% rate previously applied on the first £125,000, with higher rates above that.

Who will benefit from the stamp duty holiday?

The stamp duty holiday is welcome news for buyers, estate agents and developers after the housing market was effectively brought to a halt by the coronavirus crisis. Sunak’s move will mean significant savings for some buyers at the lower end of the housing market in particular.

But others will see no change. For example, first-time buyers purchasing a home in England or Northern Ireland for up to £300,000 have been exempt from this property tax since 2017. This helped around 214,000 buyers purchase a home in 2018/19.

Stamp duty may be payable (excluding the first-time buyer exemption) on 85% of all property transactions. But from a geographical perspective, the impact of the tax is not the same across the country. This is because of the wide range in average house prices.

This is backed up by stamp duty data, which shows that buyers in London and the South East paid 72% of all receipts in 2018/19.

In other words, the average property price in London far exceeds the lowest interest-free threshold for the area.

This is further demonstrated in the stamp duty revenues received by each region.

In London, the South East and the Midlands, the proportion of sales where this tax was not payable was under 5%.

In parts of the north of England, more than 40% of sales were not liable for stamp duty.

In short, it would largely be homemovers in London, South East and parts of the Midlands who would benefit most from a stamp duty holiday.

In fact, our data reveals that the greatest beneficiaries of Sunak’s stamp duty holiday are affordable areas in and around London, where up to 95% of sales would be stamp duty-free.