BEATING THE STAMP DUTY HOLIDAY
There may be alternative ways to avoid losing out, says IAN L HANDFORD
THE Government’s introduction of a Stamp Duty Land Tax holiday on all domestic property purchases from July 2020 until March 31 2021, was in my humble opinion always going to be controversial once the ‘holiday’ ended.
There is little doubt the ‘nil duty scheme’ has buoyed up property sales during the last few months on purchases of up to £550k, which gives up to a maximum of £15,000 saving on each purchase. Officials at the HMRC even confirmed there has been a marked increase in residential sales of some 72% during the third quarter of 2020, while officials at the Office for National Statistics (ONS) produced figures that confirm the average price paid for a house in the UK, has reached a new high in the year to September 2020 of £245,000. Apparently, the 4.7% average increase in buying prices in the year means in London the average is £496,000 (a little under the Chancellors “nil-rate” figure) which is not too surprising.
For anyone thinking of, or already negotiating the purchase of a new home (not a second home) it is critical you ensure your advisers and all general information is in place as we approach the New Year, because once Christmas is behind us only thirteen working remain before ‘April Fools’ day, following which Stamp Duty Land Tax bonus will be history.
Trying to exchange or complete a purchase before March 31 is going to be increasingly more difficult, as new buyers appear and lockdowns slow down the process of administrative work after Christmas. Legal requirments, Land Registry, Local Authority requirements and getting the financial package in place is going to be very difficult as the deadline of March 31 approaches. If the deadline is missed ‘April Fools’ day takes on a whole new perspective, particularly if you are dependent upon saving the Stamp Duty. In my view there will be a plethora of new purchasers on the scene after Christmas, hoping to quickly take advantage of the stamp duty bonus at the last minute.
We can all appreciate that once a new property has been chosen, the gauntlet of searches, surveys, conveyancing and other legalities and even removal commences.
Sadly, it means you will be involved with independent advisers and a bank, where time is outside of your control.
Arranging financial matters will especially eat up time, as generally it means obtaining or extending a mortgage facility, or completing the sale of another property or in the worst scenario, arranging a bridging loan, all in an endeavour to meet the deadline.
Some (so-called) experts believe the Chancellor could extend the announced deadline (pigs might fly), yet according to the Chief Economist at the Bank of England Mr Andy Holdane with house prices having increased by 16% since 2004, he says “many families have built up excess savings during the pandemic era”, and then goes further adding “families are using savings to buy a new house or a new car” and that he believes there is “plenty of that pentup demand still in the tank”.
But other experts say it could be more appropriate or opportune to not continue as the deadline nears, after all if you are going to be £thousands out of pocket, is more risk for whatever reason really worth it?
Perhaps as an alternative the sellor (vendor) could be approached to see if they might be open to renegotiate the sale price on the basis completion is unlikely to be achieved on time – which of course could actually be their fault.
The seller will certainly appreciate much of the administrative work will have been done and therefore it may be more sensible for even them to revisit the price and achieve a quick sale, rather than having to restart the whole process all over again with a new buyer.
The really big question in this scenario is, will prices remain stable after April 1st 2021 or will property values and sales fall, after the final rush to get the bonus of reduced Stamp Duty has occurred, which certainly happened when the ‘Buy to Let’ rules changed a couple of years ago. A renegotiated sale price might be the best way forward for both sides.
Meanwhile, the self employed sector are already experiencing stricter checks by mortgage providers due to the pandemic, with some brokers admitting that even viable businesses are being “frozen out” of extra money deals.
As well as this some independent researchers are estimating that around 325,000 buyers are likely to miss the deadline and will lose the Stamp Duty Land Tax bonus.
In that situation they have to “take the added loss on the chin” so to speak, which is why, in my view, as the end of February nears, serious thought should be given to the question “should I continue on or try to renegotiate a way forward” because in the present uncertain financial world, let alone the uncertainty of our future with Covid-19, now is not the time to be taking on more risk or even a new bridging loan.
Ian L Handford was the National Policy Chairman for the Federation of Small Businesses prior to becoming National FSB Chairman in 1998.